Knight Vinke: UBS Should Divest Investment Bank

Apr 15 2015 | 2:01pm ET

Activist investor Knight Vinke has renewed criticism of UBS AG ahead of the firm’s annual meeting on May 7, saying the Swiss banking giant needs to spin off or merge its investment bank. 

The firm contents the investment banking division of the global bank, one of the world’s larget, is unviable as it is currently constructed and should be divested so the bank can concentrate on its wealth and asset management businesses, according to a Reuters report.

The assertions were contained in two letters sent to the bank by Eric Knight, CEO of Knight Vinke, over the past few weeks. The first, dated March 27, alleges that UBS’s investment banking business exists only due to funding subsidiaries from the rest of the operation and “may, in fact, be worthless once its true capital requirements are taken into account.” 

The letter comes to the conclusion that “UBS needs to be radically streamlined, just as many of its global universal banking peers are doing, with a new strategy and possibly new management,” and calls the issue fundamentally one of governance. The activist believes the burden of carrying an unprofitable investment banking division is reflected in UBS’s poor stock market performance. 

Knight Vinke included an appendix with its first letter with ten questions for the UBS board, and several recommendations. In a letter dated April 8th, UBS responded to Knight’s letter with a letter of its own, refuting Knight’s reasoning and stating “the senior independent director and the Audit Committee have reviewed your assertions and have determined them to be erroneous and without merit. 

UBS’s letter also references Knight Vinke’s prior conversations with the bank, stating “You have met with [UBS Group CFO Tom Naratil] on several occasions in the past and all of your questions have been addressed. We have evaluated your suggestions and have determined that none of them are superior or additive to the bank’s successful strategy.”

It also adds, “We want to be very clear and reiterate that the Board of Directors and Group Executive Board are wholly aligned with each other and our shareholders in our desire to execute our business strategy.”

Undeterred, Knight Vinke sent a follow up letter on April 13, in which it stated the ten questions contained in the original letter remained unanswered and that it was merely seeking “open, intelligent and transparent” responses. 

Knight Vinke holds about 1% of UBS stock, which is up more than 15% since the firm went public with its activist campaign, according to Reuters.

Knight has previously indicated a willingness to join UBS’s board. Knight Vinke was founded in 2003 and is based in New York.

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