UBS defends Enron plans

January 16, 2002 Posted: 1601 GMT

ZURICH (Reuters) -- Switzerland's biggest bank UBS on Wednesday sought to reassure investors that it is sticking to its core strategies, despite a switch in top management and plans to acquire operations of U.S. energy trading group Enron Corp.

"The truth is that we are now very comfortable with our business and our basic strategy," recently-appointed chief Peter Wuffli told investors. "We've shifted to an organisation that will primarily grow organically, and (we will) build on the platform we already have."

Speaking to investors for the first time since being appointed president of the group executive board in December, Wuffli said there would be less restructuring and disruptive change at UBS.

The departure of its top executive in December had raised worries among investors that UBS was growing less risk-shy after upsets in recent years which led the group to focus on comparatively safe wealth management.

Such concerns may have been exaggerated by the plan to acquire the North American energy trading operations of collapsed Enron.

Yet Wuffli, a long-time executive at UBS, said his promotion and the departure of former top executive Luqman Arnold was not connected to UBS's plans to acquire Enron.

UBS has never elaborated on the reasons for Arnold's sudden departure, but some analysts speculated it may have been tied to the Enron deal, or else what some believed was a new appetite for risk at UBS, burned badly by the near-collapse of U.S. hedge fund Long-Term Capital Management in 1998.

Speaking to reporters, Wuffli said UBS had no plans to use Enron as a springboard to expand in the same business in Europe.

UBS was selected as the successful bidder for Enron Corp's North American wholesale electricity and natural gas trading business -- its core operations -- last week, after the U.S. company filed for Chapter 11 bankruptcy protection in December.

The deal calls for UBS to pay Enron 33 percent of future profits from new business over a period of several years, but with no up-front payment. Wuffli compared the deal to an "option" to buy the business.

He said it would be "a welcome diversification" to UBS's trading technology and risk management, but added the decision would "not change our risk appetite."

The deal will help to raise the profile of UBS, classed among the world's 10 largest banks, in the United States, where last year it also bought U.S. broker PaineWebber.

"I do feel we are (shifting) our priorities," Wuffli said, saying in a speech that any acquisitions in future were likely to be focused on wealth management.

"If you asked me now, for example, where our interests lie, I'd say that we'd focus on wealth management businesses. Generally, deals are likely to be smaller and less transformational than they have been in the past," Wuffli said.

At the end of September 2001 UBS Group had $1.375 trillion in client assets under management, making it one of the world's largest money managers.

By comparison, Fidelity, the largest U.S.-based fund manager had $897 billion in client funds at the end of September.

UBS is using brokerage expertise from PaineWebber to expand in five key markets in Europe. Its focus is on the "core affluent" segment which targets investors with $500,000 and up to invest.

Growth in that market is projected at 10 percent per year in Europe. UBS has not set a target to achieve growth in its private banking business, but aims to increase business partly by offering a wider range of products.

Matthew Sebag-Montefiore at Oliver, Wyman & Company, who attended Wednesday's conference, said he saw potential for expansion in the United States, for example, in structured products such as capital-guaranteed mutual funds which aim to provide private investors with a protected return.

"`I think there is strong potential for growth in structured products manufactured by UBS and Warburg for private clients to (be sold) to the PaineWebber franchise," he said.

UBS shares were down 1.8 percent in afternoon trading in Zurich.