UBS gets cold feet with UBS Capital

UBS AG, Switzerland’s largest bank by assets, has decided not to spin out its private equity unit, UBS Capital, for the foreseeable future. In a statement released today it said that “challenging short-term conditions for the private equity market make it an inopportune time for the brand-building and fund raising exercises connected with the launch of a new autonomous management company”. Earlier in the year it had been reported that the Bank would sell up to 80 per cent of the business to the management team.

This new move clearly did not suit the unit's CEO, Pierre de Weck, who has resigned. A spokesperson at the bank told PEO that there had been two differing visions for the unit’s future, with de Weck and his team being keen to grow the business quickly and to see further capital commitments from the bank, something the bank itself was not prepared to do.

In the statement the Bank stated that “in the current environment, UBS will give top priority to maximising value creation from its existing portfolio, adjusting down the rate of new investment from its own balance sheet in accordance with the more volatile prevailing conditions.”

Although there have been differing reports as to the extent of the losses and write-downs UBS Capital has suffered, the unit made a pre-tax loss of SFr282m in Q1 of 2001 [compared to profits of Sfr114m a year earlier], and it seems clear that the bank’s senior management have become anxious to cap what they see as the significant risk of further losses.

As accounting rules will soon be obliging banks to include mark-to-market valuations for their private equity investments, UBS is not alone in wanting to take a hands-on approach to managing their private equity businesses. Deutsche Bank is continuing to wrestle with its Morgan Grenfell Private Equity business and JP Morgan Chase profits have been depressed by significant losses from Chase Capital Partners.

Such balance sheet impact does also mean though that the prospect of having a more arms-length relationship by spinning out the private equity business remains attractive. UBS said today that it “doesn't rule out increased autonomy as an appropriate future direction for its private equity business, in order to best capitalise on the expansion opportunities offered through third-party fund raising”. As a source at another private equity firm commented: 'In other words, we’ll be happy to have other parties put their own money into the business in the future'.

Markus Granziol, chairman of the bank’s investment banking operation UBS Warburg, will head the private equity business in the short term but the bank’s spokesperson confirmed that changes in the management structure at the unit, including de Weck’s successor, will be announced in the next few days.