Oswald Grübel — shrink your investment bank!
UBS’s investment bank produced outsized losses in 2008 and 2009; consequential perception of UBS’s riskiness substantially impacted its private banking business, which only returned to positive net new money inflows at end 2010.
Since then the revenue stream of the investment bank has stabilized somewhat, but continues to weigh heavily on the overall group ROE. Today’s loss announcement has two key effects: (1) a direct hit to our TBVPS forecast of some 4.4%; and (2) this loss also has the scope to have a material impact on the perception of UBS’s private bank, impacting its future operating trends, in our view.
In our view, today’s announcement therefore adds to the long list of arguments (and pressure) for a substantially smaller investment bank.
Well what did you expect from a giant vampire squid?