The radical transformation to its business model that UBS (NYSE:UBS) initiated early last year may be drawing to a close, but the journey sure has left its marks on the Swiss banking giant. Working towards tight capital requirements imposed by the Swiss regulators and eager to shake off the stigma from a multi-billion loss due to unauthorized trading by a single employee, (see Questionable Risk Controls Cost UBS More than Rogue Trades) as well as for its role in the LIBOR manipulation scandal, (see UBS Settles Libor Manipulation Charges At A Whopping $1.5 Billion) UBS put the immediate performance of its business units aside in pursuit of long term goals – something that resulted in rather poor performance figures for the bank until late last year.
This single-minded focus on reorganization no doubt resulted in some slip ups along the way. Something that shows in the fact that the Swiss bank came in second in this year’s Thomson Reuters Extel Survey list of best pan-European brokerage firms for equity and equity-linked research after monopolizing the top spot for a good twelve years.  Bank of America Merrill Lynch (NYSE:BAC) took the top honors and Morgan Stanley (NYSE:MS) ranked third. While Bank of America’s efforts to improve its brokerage business are an important factor behind its success, UBS’s weak performance in the recent past no doubt helped the former’s cause.
The reason why UBS’s fall in the list is important is because the survey includes responses from 15,000 professionals and hence captures industry perceptions about the world’s biggest brokerages quite well. As UBS’s revamped business model focuses heavily on its wealth management business, it becomes all the more important for the Swiss bank to be ranked right at the top of the list.
Things were not too bad for UBS overall, as the bank still retained its top position in the list of leading pan-European brokerages for trading and execution. What we are really interested in seeing is whether the bank’s slide from the top position in the list of best equity and equity-linked researchers among the brokerages is a one-off event, or just an indicator of worse to come in the future.
We maintain a $19 price estimate for UBS, which is less than 10% above the current market price.Notes: