You and us — a UBS mess
It’s been eight years, and the gnomes of UBS must be wondering what has become of their PaineWebber investment.
It’s been eight years, and the gnomes of UBS must be wondering what has become of their PaineWebber investment.
The venerable wirehouse, born in Boston in 1880, weathered the Depression, went public in 1972 and became an investment banking player through the acquisitions of Mitchell Hutchins and Blyth Eastman Dillon & Co. in the late 1970s.
During its last six years of independence, PaineWebber absorbed Kidder Peabody and J.C. Bradford.
By 2000, the rise of Citigroup and the perceived competitive need to become part of a major global financial powerhouse — to say nothing of the vast riches that would accrue to top PaineWebber executives for brokering a takeover — led the firm to sell out to UBS AG of Zurich, Switzerland, for $11 billion.
All that bread apparently fell into a fondue pot, because PaineWebber slowly but surely disappeared into the gooey UBS bureaucracy. On the investment banking side, the mix of PaineWebber, S.G. Warburg and Dillon Read failed to create a new Goldman Sachs. And on the retail front, we have the nondescript “UBS Wealth Management USA.”
Now, the ineptitude of top UBS management is eroding the value of even that watered-down brand.
Today’s revelation in the Financial Times that the bank’s highest officials knew about its tax-evasion schemes for U.S. clients is only the latest bad news.
The bank has posted four quarters of red ink and taken $43 billion in write-offs for bad mortgage loans (so much for Swiss financial prudence), and who knows how much more is coming.
Under a settlement with regulators, it’s also spending $19 billion to buy back frozen auction rate securities held by its customers. Some estimate that the firm could lose more than $1 billion on the buybacks.
Yesterday, in a McKinsey-esque move so favored by clueless and desperate corporate suits, UBS said it would lop off 5,500 employees and reorganize itself into three components — wealth management, asset management and investment banking.
Yep, that’ll solve the problems.
According to The New York Times, some UBS investors are clamoring for the firm to spin off its U.S. retail business — i.e., PaineWebber. Wouldn’t that be ironic?
To be rid of the sullied UBS brand, I’m sure the vast majority of the firm’s U.S. retail advisers would be more than willing to forgo the fabulous synergies that came from being associated with a worldwide banking behemoth. I’m also sure many UBS advisers are already looking to escape lest they lose clients to advisers at other firms.
The UBS problems just prove the hubris inherent in the idea of a worldwide, universal financial institution that can lend, underwrite and advise, all under one roof. Sure, you can get such creations to work, but why? The gigantic, ponderous beasts aren’t necessarily all that profitable and can create problems of international proportions.
In finance, as in so many businesses, smaller is often better. In the case of UBS, it’s why selling or spinning off the U.S. retail business (that is, PaineWebber) could work.
Fortunately, the PaineWebber brand is still much remembered and held in high regard. It’s just been dormant. All this Sleeping Beauty of a brand needs to reawaken from its slumber is some rich young prince to cough up enough dough and redo the old commercials.
As a smaller, more focused business under the right management, you’d find lots of people saying, “Thank you, PaineWebber.”
Evan Cooper is the senior managing editor and online editorial director of InvestmentNews.
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Sir:
In Evan Cooper’s opinion piece, he wrote this: “It’s been eight years, and the gnomes of UBS must be wondering what has become of their PaineWebber investment.”
The reference to gnomes of UBS, headquartered in Zurich, is in very poor taste.
“Gnomes of Zurich” is a term of disparagement for bankers of that city.
Google the phrase, and then read the Wikipedia article.
An apology should be forthcoming.