Swiss banking giant UBS AG (UBS) has reached an agreement to divest its Corporate Employee Financial Services (CEFS) International business to London-based Montagu Private Equity. The deal will expectedly be complete in 2014, subject to regulatory approval.
According to the deal, CEFS International will be legally transferred into its own entity, along with its employees. Currently, the CEFS is a part of UBS AG’s Wealth Management business and manages employee share programs for corporate clients across Europe and Asia. However, the aforementioned divesture will not affect the bank’s Equity Plan Advisory Services (EPAS) business based in the U.S.
The agreement will help Montagu Private Equity to utilize CEFS International’s strong global presence, UBS AG’s healthy client base as well as expertise to enhance business growth.
For UBS AG, the divesture is part of its endeavors to focus on core businesses and downsize troubled segments. Notably, UBS AG has been experiencing challenges in the investment banking business, as reflected in the deterioration of its performance over the past few quarters.
The stressed economic environment and stringent capital norms have prompted the company to chalk out plans for rightsizing its business. Last month, UBS AG declared plans its decision to integrate its foreign exchange and precious metals business with its rates and credit unit. The new entity will be named FX, rates and credit (FRC) unit.
Additionally, UBS AG announced 10,000 job cuts last year, which were part of the company’s restructuring efforts. The layoffs, which were designed by Chief Executive Sergio Ermotti, were aimed at reducing risk-weighted assets as well as the complexity of the company’s investment banking division.
Apart from UBS AG, Credit Suisse Group AG (CS) has formed a new unit that caters to rates as well as foreign exchange and commodities operations to increase returns. Other global banks like Deutsche Bank AG (DB) and Citigroup Inc. (C) have also been rightsizing their units to counter a bleak macroeconomic environment and a decline in the cost-to-income ratio.
Given the sluggish operating environment, we believe that a significant improvement in UBS AG’s earnings is elusive in the coming quarters. However, prudent business model changes can help improve efficiency and reinforce its competitive edge.
UBS AG currently carries a Zacks Rank #4 (Sell).
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