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UBS Restructures, Tweaks Compensation

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Following a second-quarter loss of about $330 million, UBS says it will separate its business divisions into three separate units, with each having more operational authority and accountability than in the past.

The announced changes come after the company reported its latest results, which include about $5 million in write-downs and give UBS a reported total of some $42 million in write-downs since the credit-crisis started last year.

“UBS will align incentives for management and staff of each autonomous business division directly with its financial results. This will promote profit generation within an appropriate and rigorous risk framework that fully recognizes the risk/reward profile of different activities,” the company says.

To boost its retention of financial advisors, UBS Wealth Management U.S. has reportedly decided to boost the payouts of financial advisors generating at least $400,000 in annual fees and commissions. They are now expected to pocket 1.5 to 2 percent more of that revenue than in the past. This step comes after similar moves at Citigroup and Morgan Stanley.

UBS also has announced that it will continue “to invest in and develop its global wealth management business, its core asset, with the aim of strengthening both its presence in international growth markets and its leading position in Switzerland.”

“Our review has clearly revealed the weaknesses associated with the integrated “one firm” business model,” says Peter Kurer, chairman of UBS. “Some of these weaknesses, such as the blurring of the true risk-reward profile of individual businesses, are the source of substantial risk, as we have seen in the past few months. Others have led to the creation of excessively elaborate processes and unnecessary layers of complexity.

“The new structure will create a spirit of transformation, clear accountability and transparency, and will allow us to optimize funding and capital usage,” he explains. “This repositioning of the bank will create maximum strategic flexibility to capture the best possible opportunities for shareholder value creation in the future.”

UBS will continue to develop the platform and reach of its global wealth management and business banking. This includes the expansion of its global presence in international wealth management growth markets.

UBS’ new business model and related “change program” are expected to be completed by year-end 2009. They will entail the following: o A revised incentive system to reward divisional management and staff for shareholder value creation in their own business division (during fourth quarter 2008);o Further enhancements to the funding framework so that the costs and structure of liabilities of each business division approximate those of stand-alone competitors (end 2009);o Adjustments to the executive governance structure to reflect the above changes (third quarter 2008);o Development of targets and performance indicators consistent with the repositioning of the business divisions (end 2008);o Reduction of the size and scope of the corporate center, in line with the re-allocation of process ownership to the divisions;o Review of intra-divisional servicing, revenue sharing and referral arrangements (mid 2009); and o Continuation of the strategic cost reduction program targeted at increasing the efficiency of the group.

Janet Levaux, MBA/MA, is the managing editor of Research; reach her at [email protected]


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