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Knight Vinke sees UBS moving towards break up

June 18, 2014
By Simon Jessop, Katharina Bart, Mark Potter and Albert Schmieder; Geneva

MONACO (Reuters) – Eric Knight, CEO of activist fund manager Knight Vinke, believes Swiss bank UBS will eventually follow his advice to split its wealth management business from its investment bank.

Speaking on the sidelines of the GAIM hedge fund conference in Monaco, Knight said he saw no reason to sell his firm’s stake in UBS, despite the bank showing little interest in breaking up.

“There’s no reason to sell out. I’m still highly convinced they will do it. It may take a bit of time, but they’ll get there in the end,” he said.

Knight believes UBS’s wealth management business would thrive apart from its riskier investment bank, and took a roughly one percent stake last year to campaign for a split.

UBS, meanwhile, has said the two businesses work together closely, bringing benefits to both.

“Forget what UBS is saying and look at what it’s doing,” said Knight, referring to UBS’s plan to create a new corporate structure to ensure it can be broken up more easily in a crisis.

Knight said UBS was effectively creating a ‘good’ bank for its wealth management unit and a ‘bad’ bank that contains its investment banking unit and other non-core assets.

He added that while it had initially presented this as an internal process, it had subsequently announced a so-called exchange offer, under which it will swap shares into a new group holding company – meaning its businesses could be separated more easily if one ran into trouble without jeopardizing others.

That “suggests to me their thinking has moved,” Knight said.

“Who knows, maybe they … may spin off the good bank … reduce risk and give shareholders as much as 100 times more value than the 25 cents special dividend they’re planning to issue as a sweetener,” Knight said, referring to the dividend UBS announced to accompany its exchange offer.

A spokesman for UBS said the bank doesn’t comment on individual investor opinions, but appreciates being seen as a long-term investment.

When the bank outlined the plans to alter its legal structure last month, CEO Sergio Ermotti said the investment bank was “doing well and requires no strategic changes.”

UBS’s plan follows measures to meet tougher rules imposed by regulators, who are eager to prevent a repeat of 2008 when Swiss taxpayers had to save the bank from losses in the United States.


In terms of Knight Vinke’s response to the exchange offer, Knight said it was not yet speaking to other shareholders but would “do so in due course”.

He said his firm had a generally good relationship with the UBS board.

“We have at least a quarterly, if not more regular, dialogue with management; we meet with (finance chief) Tom Naratil and his colleagues. We also write to the board quite frequently and have a dialogue with the chairman.

“Although it can be a bit difficult, there’s nothing personal.”

Knight said his firm’s stake in UBS, which was bought at around 10 Swiss francs compared with the current share price of about 18 francs, was showing a “very nice return”.

He was also satisfied with his firm’s stake in French retailer Carrefour.

“Averaged out, we’re showing a profit on the position again,” he said, after Carrefour stock bounced back from a low of around 14-15 euros to around 26-27 euros now.

“We haven’t sold out, we think there’s more to go. We have great confidence in the chairman and have an excellent working relationship with him.”

While the year had started off less favorably than 2013, when Knight Vinke made a return of 37 percent across its portfolio in dollar terms, Knight was confident of improvement.

“This year is a different year, a different market, but I think it could turn out to be a very good year as well,” said Knight, who has half a dozen “significant” investments of $100 million or more, along with several smaller ones.

“It was a bit slower starting off but I think we’re close to seeing change on a number of things and if UBS starts to take off it could be a nice contributor.”

(Additional reporting by Katharina Bart and Albert Schmieder in Geneva; Editing by Mark Potter)

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