UBS rips up one-bank model

By John O'Donnell

ZURICH (Reuters) - Swiss bank UBS will separate its wealth management business from investment banking, a move that could pave the way for a spin-off or sale of the business that made it Europe's top casualty of the markets crisis.

The embattled Swiss group unveiled plans to split the two on Tuesday as the world's biggest banker to the rich hemmorhaged clients and admitted there were problems with its one-bank model.

It said there had been net new money outflows of almost 44 billion Swiss francs (22 billion pounds) as customers fled -- compared with inflows of 34 billion francs a year earlier -- and wrote down an additional $5.1 billion (2.7 billion pounds) in assets related to U.S. residential real estate and other structured credit positions.

The exodus of rich customers and UBS fund clients was hailed by Dirk Becker, an analyst at Landesbanki Kepler, as the "worst that could have happened".

Many of the bank's customers -- who prize low-profile stability -- have grown increasingly nervous as bad news from UBS continues to make headlines.

UBS (UBSN.VX: Quote, Profile, Research) also racked up a further $5 billion in writedowns on investments, taking its total bill from the markets crisis to $42 billion.

It announced a bigger-than-expected loss of 358 million francs in the second quarter and the departure of its finance chief, Marco Suter, an ally of former chairman Marcel Ospel, who was toppled in the crisis.

Management, which has been engaged in a review of the business, signalled for the first time on Tuesday that it could ditch the investment bank that landed it in trouble although it said there were no plans now to do so.