UBS could move its prop stocks team to its asset management division

UBS AG, Switzerland’s biggest lender, may move its proprietary stock-trading business to its asset- management division, chief financial officer Tom Naratil has told Bloomberg news agency.

According to results just released, UBS profits plunged 76% in the last quarter of 2011 as its investment banking arm turned in losses. Net income for the quarter totaled CHF393m (£270m), down from CHF1.7bn a year ago, and well below analysts’ expectations.

The proposed prop desk move would affect about 50 people working at a business that produced revenue of $65m in the fourth quarter, Naratil told Bloomberg in an interview in Zurich today.

If the plan goes ahead “in the coming quarters”, UBS would give the unit seed money and then seek outside investors. UBS has had to close its proprietary trading operations in the US because of the so-called Volcker rule.

The proprietory stock-trading unit would be placed within the existing alternative and quantitative business of asset management, he told Bloomberg.

That would help to avoid mistakes made in 2005 when the company moved its fixed-income proprietary trading team into an internal hedge fund, called Dillon Read Capital Management LLC (DRCM), within the asset-management, he added.

The DRCM operation contributed to UBS’s losses as the subprime-crisis unfolded, UBS said in a 2008 report to shareholders. In March 2007, DRCM traders informed UBS of about $50m in writedowns, and losses grew to CHF150m Q1 that year. In May 2007, UBS shut DRCM down.

The bulk of the fall in UBS’s last quarter results was caused by a loss in its investment banking division, as expected, with the group reporting a CHF256m pre-tax loss, compared with a profit before tax of CHF100m the previous year. Full year profits fell 44% to CHF4.2bn, compared with 2010’s figure of CHF7.5bn.

The results come after a tough period for the bank. UBS was badly damaged in the 2008 financial crisis, when the Swiss government had to step in to rescue it, while last year it lost a further CHF2bn following the debacle with alleged rogue trader Kweku Adoboli.


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