Big banks face break-up calls in subprime wake

By Thomas Atkins - Analysis

ZURICH (Reuters) - Battle lines are forming in banking that pit bigger-is-better against break-up advocates, and some of the largest conglomerates -- like subprime victims UBS (UBSN.VX: Quote, Profile, Research) and Citigroup (C.N: Quote, Profile, Research) -- could fall prey.

Such sprawling financial groups are facing pressure from regulators and shareholders to look back to the future and simplify, sell assets and focus on what they do well.

Big banks have long held that they profit from broad strategies in two ways: one business unit often feeds another, and diversified activities lessen earnings volatility.

But new risks have come to the fore with the subprime crisis which saw, for example, a handful of traders and managers at UBS's investment bank rack up over $37 billion in losses and damage the reputation of its prestigious wealth-management division, the world's largest.

"The supposed synergies of having investment banking and private banking in one company have been grossly overstated by the previous UBS management," said analyst Peter Thorne at brokerage Helvea.

"They have persistently ignored the large conglomerate discount that held back the UBS share price because of the presence of the risky investment bank," Thorne said.

UBS on Friday suddenly saw the emergence of a major shareholder who is leading a campaign to break up the bank into its parts and possibly sell them off, reducing the Swiss bank to its core wealth-management activities.

Luqman Arnold -- who in no small irony served briefly as UBS CEO in 2001 -- controls a 0.7 percent stake in the bank and launched the campaign by sending a letter to UBS management.