The travailsof LBS
AFTER two big restructurings in the past few weeks, in private banking and iisset management, ubs's profits were unlikely to be wonderful. They were not. On March 9', Switzerland's largest bank and Europe's third-biggest by assets, announced net profits of SFr 6.3 billion ($4.2 billion) for its latest financial year. These results were twice as good as the previous year's; but those included having to write off, among other things, a disastrous investment in Long-Term Capital Management, a hedge fund that almost went bust in September 1998. And the increase was driven by a huge rise in trading profits. The bank's shares duly fell again. UBS, formed by the merger of the old Union Bank of Switzerland (UBS) with the smaller Swiss Bank (lorporation (SBC), remains a directionless and unhappy institution. The bank's boss, Marcel Ospel, is under fire. Its myriad problems, Deutshe Bank might care to note, date back to that merger. Although billed as a merger, it was it was in reality an SBC takeover. SBC folk lilled almost all the top jobs. UBS was pushe into a deal because it was in such poor shape. SBC knew that there wer problems at UBS, but it failed to draw the appropriate conclusion: to steer clear because UBS's risk management was so much worse than everyone else's. After the merger, problems duly emerged in Asia as well as in the bank's exposure to Long-Term Capital management. It is perhaps no surprise that the new UBS is not prospering. The performance is below our original expectations. But (the merger) was a difficult thing," says Marcel Ospel, chief executive of the new UBS and, before that, boss of SBC. Apart from retail banking in Switzerland, where the bank has been unable to shed many staff, the two most obvious problems have been in asset management and private banking. It would be unfair to blame poor asset-management performance on the merger, however. The private-banking mess is another matter. The market for private banking is growing strongly, and it has traditionally been something of a Swiss niche. Rudi Bogni, its private-banking boss, thought he could double the size of UBS'S private-banking business in five years. In the event, profits have fallen sharply and UBS has been able to attract no new money to manage. Mr Bogni has now been sacked. The onshore business has been put under ubs Warburg, the investment-banking arm. From The Economist Comprehension tasks 1. What is the difference between a merger and a takeover? 2. What is the main reason for the merger of Germany's Deutsche and 3. Characterize Germany's retail banking market. 4. What are the consequences of the merger of the old Union Bank of Swit 5. What do you think the banking industry will look like in a few years? Will
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