Investor warns trust in troubled UBS is waning

ZURICH (Reuters) - Activist investor Luqman Arnold on Monday again urged Swiss bank UBS AG (UBSN.VX: Quote, Profile, Research) to consider selling its investment bank, saying recent losses had damaged staff and client trust in the bank's current strategy.

In a second letter to UBS vice-chairman Sergio Marchionne, Arnold said the bank's integrated model combining wealth management and investment banking was workable in theory but in practice was fraught with difficulties.

"The aftermath of the recent dramatic losses has severely undermined customer and staff confidence in the integrated model, hence our suggestions that greater separation would benefit both the wealth management and investment banking businesses," Arnold said in an open letter.

Shares in UBS were up sharply on the day on speculation the pace of reform at the bank would accelerate. UBS shares rose 6.9 percent, leading European banks up 1.37 percent.

The letter comes in the wake of Arnold's campaign launched on Friday to pressure the UBS board into sweeping changes in its corporate governance and business structure. UBS lost more money in the U.S. subprime loans crisis than any other worldwide.

Arnold, a former UBS chief executive and now head of Olivant investment firm, wants Marchionne to oversee an aggressive search for a chairman to replace Peter Kurer, who UBS has named as the replacement for Marcel Ospel.

In the new letter, Arnold said he did not wish to force UBS to sell its investment bank categorically and that market conditions were not favourable.

Still, the complexity and so-called conglomerate discount both made a sale at some point compelling, Arnold said.

Olivant has said it controlled some 0.7 percent of UBS's capital, making Arnold one of the top 10 investors in the world's largest wealth manager.