Battered UBS to be slimmed down

The controversial new chairman of UBS today offered to slim down the battered Swiss investment bank to a rump and bring in sweeping boardroom changes to restore its prudent reputation.

Peter Kurer and chief executive Marcel Rohner have virtually abandoned UBS's "one-bank" strategy and at the annual meeting in Basel today set out plans to refocus the business around its wealth management arm.

Their proposals go a long way to meeting the demands of activist investors, led by Olivant's Luqman Arnold, the former UBS chief executive, who have savaged the bank's leadership for being forced to write down $37bn (£18.5bn) in mortgage-backed assets. The bank suffered unprecedented Sfr4bn (£2bn) losses last year and in the process transformed an institution renowned for its prudence into a byword for reckless expansion.

The proposals mark a sharp U-turn from the strategy pursued by outgoing chairman Marcel Ospel of using UBS's wealthy client base to fuel the ever-expanding appetite of investment banking, cutting off its lifeline and, potentially, turning it into a bit-player in the investment banking industry.

"We no longer aim to offer everything to everyone in investment banking," Rohner said. "We aim to achieve the highest client-driven growth. But to do that we do not need an oversized balance sheet. We do not need an oversized inventory of trading portfolios. And we do not need an unnecessary concentration of risk."

In a key passage he told angry shareholders: "The capital required by the investment bank for future growth must be generated under its own steam. Surpluses from the wealth management business will be returned to shareholders through dividends or share buy-backs."

Kurer, the bank's top lawyer, is seeking shareholder approval for his appointment as chairman for at least a year. Today he promised "change, fundamental change" in the way UBS approached risk and the implications this had on the range of its activities. "The board and I know that we have to turn the page," he said.

Confirming that he would scrap the three-strong chairman's office developed by Ospel, he said the revamped board would set up a risk committee to review the bank's portfolios and approve transactions "only exceptionally". This, he said, was a major shift from the current approach, which was savaged earlier this week in a 50-page internal report suggesting that risk controls were so poor that parts of investment banking were effectively out of control.

Kurer, the butt of savage criticism from Arnold, went a long way to meeting his demands for change by simply recommitting UBS to a "slimmed down" version of the one-bank model.

"We are of the firm view that the capital allocation model should be much more rigorous and properly recognise the appropriate levels of risk and reward and should be totally consistent with the objective of maintaining and augmenting our position as the world's largest wealth manager which is ultimately our core franchise," he said.

While Rohner owned up to a catalogue of self-induced errors, Kurer said the new board, to be joined by outside independents, would reinforce "a culture that is rooted in our home country values such as unequalled quality, prudence and discretion as well as dedication and accountability".

By contrast, in a speech shorn of contrition, Ospel justified the drive to make the investment bank one of the top 10 in the world and spoke of UBS as "one of the world's strongest, most highly-renowned banks". He also suggested that it had weathered the storm that was gradually passing and said: "We will be soon sailing into calmer waters."