LONDON - Knight Vinke, an activist investor, called for the breakup of UBS on Thursday, days after the Swiss bank reported strong first quarter earnings.
In a letter to UBS’s top management and investors, Knight Vinke’s chief executive, Eric Knight, said the firm’s risky trading activity posed a threat to the bank’s wealth management business, and should be separated from UBS’s overall operations.
“We question the merits of keeping the investment bank under the same roof as the wealth management and Swiss banking businesses,†Mr. Knight said, whose firm owns less than 1 percent of UBS stock.
The vocal push to offload UBS’s investment bank comes as the firm’s top management, including its chairman, Axel Weber, faced investors on Thursday at the bank’s annual general meeting in Zurich.
Many small investors peppered the executives with questions about large bonuses for the firm’s bankers, as well as the impact of a $1.5 billion fine last year linked to the rate-rigging scandal.
Attention has increasingly centered on banks’ compensation plans since legislation was passed in both Swiss and across the European Union to cap the levels of bonuses for high-flying executives and traders.
Europe’s banking sector is going through an extensive overhaul, as firms respond to weak economic growth across the Continent, tougher capital requirements and ongoing problems caused by poor lending before the financial crisis.
Last year, UBS announced a major restructuring in October that will lead to 10,000 job cuts and a refocus on the Swiss firm’s wealth management unit. Other banks, including Barclays and Credit Suisse, have similarly outlined plans to revamp their businesses.
UBS’s overhaul has started to pay dividends. In the first quarter when UBS reported a 988 million Swiss franc ($1 billion) profit that was more than double than what analysts had predicted.
The healthy earnings were helped by a 92 percent rise in the firm’s pretax profit in its investment banking operation, to 977 million francs, compared to the same period last year.
First-quarter pretax profit at UBS’s wealth management outside the Americas rose 112 million Swiss francs, to 690 million Swiss francs, when adjusted for one-time charges. Earnings at the firm’s wealth management in the Americas rose 19 percent, to 251 million francs, in the first quarter.
Despite the strong earnings, Knight Vinke, which previously has targeted other big banks like HSBC in a bid to force changes, said future risks at UBS’s investment bank could potentially cause further damage to the firm’s wealth management unit.
Along with the $1.5 billion fine connected to the manipulation of the London interbank offered rate, UBS suffered billions of dollars of losses during the financial crisis because of risky trading activity. In 2011, the Swiss bank also reported a $2.3 billion loss linked to a trader scandal in London.
“The losses have weakened the reputation of its prized wealth management division and the all-important trust of its clients,†Mr. Knight said in his letter.
Shares in UBS fell around 1 percent in morning trading in Zurich on Thursday.
