UBS falls in rankings as it quits riskier business

UBS WILL sacrifice its place in the top 10 investment bank rankings as stricter capital rules force it to give up riskier fixed-income business, the Swiss bank’s financial head said.

“Investment banks will continue to fight it out to top the league tables for total global fee pool. Two will make it, another three will think they can,” UBS’s chief financial officer Tom Naratil said in an interview.

“With our strategy, we can’t be one of them. Rather, we will be a top-tier investment bank in the eyes of our clients by focusing on them and not ourselves.”

The world’s largest investment banks used to vie for top spots in the league tables by landing as many deals as possible, flaunting their large deal volumes to clients to show they were credible business partners.

But the financial crisis has put the spotlight on more sustainable business models, and many banks are now saying they select the niche areas where they can be profitable, rather than offering all clients all products all the time.

Industry data bears Mr Naratil out. UBS is set to drop out of the top 10 of global bond rankings this quarter from seventh place in the third quarter, according to Thomson Reuters data on quarter-to-date rankings.

Mr Naratil’s comments come as the Swiss bank prepares for what it calls a “year of mitigation”, as it battens down the hatches for stricter Swiss capital rules meant to induce UBS and Credit Suisse to give up riskier business.

Swiss regulators have topped up international rules set out by Basel regulators, arguing Switzerland has to be better buffered because finance plays an outsized role in the country’s economy.

In response, both big banks are scaling back risky assets, slashing costs and cutting jobs. UBS has pledged to ditch capital-guzzling activities like asset securitisation and complex structured products.

“2012 will be a transition year as we work to reach this goal by continuing to significantly reduce our risk-weighted assets while increasing our contribution to client-centric growth businesses,” Mr Naratil said.

UBS has also stepped away from an earlier vow to buy back assets it offloaded into a Swiss National Bank-managed fund as part of a 2008 rescue. – (Reuters)