Swiss banking giant
) 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
) 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
) have also been rightsizing their units to counter a bleak
macroeconomic environment and a decline in the cost-to-income
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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