* UBS future strategy focuses on wealth businesses
* Investors on alert for wealth outflows in Q1 after Libor
* UBS confident clients will stick with bank
By Chris Vellacott and Sinead Cruise
LONDON, Dec 20 Private clients who have stood by
UBS through repeated scandals will have their faith
tested by the Swiss bank's admission of rate rigging, investors
Chief executive Sergio Ermotti is winding down much of UBS's
riskier investment banking arm and believes a return to managing
money for the global rich will allow it to earn its way out of
But the jewel in the crown of the disgraced bank will only
keep its lustre if it maintains the trust of millionaires keen
to park their fortunes in the safest possible hands.
"UBS has been involved in an endless series of incidents in
the last couple of years and it will take some time - several
years without more damaging news - to restore trust," said one
Zurich-based investment manager with a stake in the bank.
UBS was fined $1.5 billion by a posse of international
regulators after admitting manipulation of the Libor interest
rate, a global benchmark which underpins financial transactions
worth trillions of dollars.
Criminal charges could be brought against staff for their
role in fixing rates and a probe by Hong Kong's de facto central
bank into alleged misconduct could yet lead to further fines in
With its reputation under attack, investors say there's no
way of knowing how many risk-conscious clients will stick around
while UBS atones for its Libor sins.
"Judging whether individual clients, charities or
foundations will leave the bank as a result of this is very
difficult to say," said Neil Wilkinson, portfolio manager at
Royal London Asset Management.
"The money flows we have seen in Q4 so far would suggest
not. But reputational hits like these are difficult to manage
and tricky to measure," he argued.
A UBS spokesman on Thursday declined to comment further on
the bank's Wednesday statement that it expected net new money
into its wealth management businesses to be positive in the
UBS is the world's number two wealth manager by assets, with
$1.55 trillion, second only to Bank of America which runs $1.67
trillion for its clients, according to an industry survey
compiled by private banking consultancy Scorpio Partnership.
The bank's wealth management business delivered record
results in the third quarter of 2012, with pre-tax profits of
600 million Swiss francs while the group suffered a 2.2 billion
francs third quarter net loss.
One London-based private banker at a rival global
institution said his customers were typically most concerned
about the solvency of the bank when choosing where to put money.
Nevertheless, reputation comes a close second on the list of
considerations and there could be a lagging effect of
Wednesday's fine on UBS's flows of client assets, he said.
"People care most about the financial stability of the
institution...because they are worried about losing their money.
With reputation, it's more about 'Do I want to be associated
with them?'. So it's a longer term decision," he said.
The private banking industry continues to reel from the
fallout of the financial crisis which saw many of the global
rich lose money on investments their bankers had recommended,
such as Bernard Madoff's multi-billion dollar ponzi scheme.
UBS's penance for its role in Libor rigging adds to a litany
of embarrassments both to itself and across the industry.
The Swiss bank's private banking staff have already had to
hit the phones appeasing clients and telling them their money
was safe after rogue trader Kweku Adoboli lost the bank $2.3
billion in a trading mishap which later landed him in jail.
UBS is not the only bank who has been forced to defend its
reputation in recent times.
Earlier this year, ex-Goldman Sachs employee Greg Smith
published a scathing resignation letter in the New York Times
which said some executives referred to their customers as
'muppets', British slang for idiots.
Goldman Sachs CEO Lloyd Blankfein said a review of emails
and employee documents did not turn up evidence to support
Private banking sources hit by such episodes insist clients
remain loyal despite tarnished reputations.
A senior executive at Barclays' wealth division said clients
were unperturbed by the bank's own crisis after it was fined
earlier this year for its role in the libor rate fixing affair
and only one individual closed their account.
"What was really interesting about the time was client
support was off the chart," the executive said.
A senior Goldman Sachs banker reported a similar trend after
Smith's expose of alleged contempt for clients, denying any
backlash apart from "the odd sarcastic thing about muppets".
But Cath Tillotson, managing partner at Scorpio Partnership
which researches the wealth management industry said while top
bankers may put a brave face on the individual mishaps, the
industry is steadily losing credibility with its key customers.
"Everybody I sit down and talk to at the moment in private
banking is in the depths of despair. It's not been an easy
year... Institutions have been more focused on regulation than
on clients," she said.
Millions in assets that would have gone to investment
portfolios run by wealth managers have already been driven
elsewhere, said Tillotson, with London property, private equity
and gold among the main beneficiaries.
UBS shareholders will be watching closely in early 2013 for
earnings statements that shed light on whether its Libor fines
have prompted worried clients to move their bulging accounts.
"If they can navigate this period successfully, the business
looks attractive," said Paras Anand, European equities head at
Fidelity Worldwide Investment, one of UBS's biggest