UBS proves it’s hard to keep a bad bank down

June 2, 2011

By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

NEW YORK — It feels like Cary Kochman should maybe turn out the lights in the American investment banking offices of UBS. The global M&A co-head is headed for Citigroup, the latest to join a parade worthy of Macy’s on Thanksgiving. Yet even with the multi-year exodus, the Swiss group has clung to clients. Crushing a big advisory franchise isn’t easy.

A swath of the thriving U.S. boutique industry rests on the shoulders of former senior UBS ranks. Blair Effron opened Centerview in 2006, Ken Moelis started his eponymous firm the following year and Ben Lorello has built up Jefferies during his two years there — all with the help of onetime colleagues. Others have departed for large rivals that have targeted UBS bankers frustrated by tougher Swiss capital rules and their shrinking or nonexistent bonus checks.

UBS should have been felled by the colossal mistakes in its investment bank and wealth management arm. But it has survived. True, it has tumbled out of the top 10 in U.S. merger advice after reaching as high as sixth in 2008. But its 11 percent share of deals this year is better than in 2007, according to Thomson Reuters data. It’s a similar story in the equities business. After embarrassingly claiming less than 3 percent of initial public offering and other underwriting business in 2009, UBS has doubled its share through May this year.

UBS Chief Executive Oswald Grübel knows how hard it is to kill an investment bank. No firm seemed to try harder than Credit Suisse, where he worked for nearly four decades. From the departure of Bruce Wasserstein to the bailout of First Boston to the overpriced acquisition of Donaldson, Lufkin & Jenrette, UBS’s Swiss rival wrestled with all manner of cultural upheaval, misallocated capital and pay problems. After all that, Credit Suisse has regained entry to the upper echelon.

Grübel will need to entice people to work at UBS. Even with a shift toward Europe and Asia, the United States remains the single biggest fee pool. In a way, the leadership vacuum and depressed share price could appeal to investment bankers looking to take a chance in the hope of big potential rewards. It’s all part of the industry’s wheel of fortune.

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