BUS 200 group project, semester 2, 20057 March 2011 business organisation and management

(Photos: Entrance hall UBS headquarters in , Aeschenvorstradt ; Counter hall UBS headquarters in Zurich, Bahnhofstrasse; UBS headquarters in Zurich, Bahnhofstrasse 45; UBS in Zurich, Paradeplatz) a glimpse of UBS

Authors: Philipp Bircher 40808459 Meike Brünk 40594432 Valery Crottaz 40638626 Andreas Eiman 40811840 Anssi Ihaniemi 40794067

Executive summary As one of the leading wealth management companies in the world, a premier global invest- ment and asset management , UBS’ situation represents a good example of the chal- lenges an organization in the financial sector faces today. Beginning with a short outline of its historical roots, we try to shed light on UBS’ organizational culture. In this context it is cru- cial to understand that the values and norms within a company serve as guiding principles on a firm’s way to success. Thus, we analyse the values the organization promotes and discuss the implications this might have on its business. Many principles that are reflected in UBS’ organizational culture today have their roots in the bank’s constituting parts. Furthermore, the views on leadership and its emphasis on entrepreneurial thinking can only be fully understood if one takes into account the bank’s very diverse background which is a result of its history, its global business operations and its, in terms of culture and age, very heterogeneous work- force.

Based on these facts and thoughts, we address the question of UBS’ strengths, weaknesses, opportunities and threats and summarize the organization’s situation in a SWOT Analysis. In terms of strengths, it turns out that the organization comes up with an efficient human re- source management, which focuses on satisfied employees, who are recognized by UBS as a key factor in the company’s success. Other aspects that reflect UBS’ comparative advantages over other firms are its emphasise on entrepreneurial leadership, its long-term setting of tar- gets by its elaborate “Performance Measurement and Management” (PMM) System, and the fact that UBS manages to integrate the business processes of its different parts in a way that allows to take advantage of synergies.

On the other hand, UBS faces some significant shortcomings like financial risks, which are inherent in a bank’s business, legal problems that influence the favourability of the company’s image, diversity issues which arise as a consequence of the bank’s heterogeneous background, and UBS’ size which implies high costs in order to maintain an effective information system.

Potential opportunities for UBS are the general liberalisation and deregulation of the financial market in the course of the ongoing globalization process, the possibility to grow in a strategi- cally advantageous manner by acquiring other companies, the continuingly strong growth rates of the countries in the Asian-Pacific region, and the political and economic integration process in which now extends to the eastern European countries, that represent new, emerging markets with a great potential for investments.

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Finally, threats that UBS has to deal with are the growing technical complexity of today’s business operations and, as a consequence thereof, the dependence on efficient technical solu- tions. Furthermore, UBS faces - due to business cycle fluctuations and its strong position in - considerable market risks. Geopolitical instabilities and crisis could cause UBS severe problems as well as the intensified level of competition, which may be the downside of globalization.

After having agreed on UBS’ shortcomings in diversity issues and the company’s size as its main weaknesses, we provide some ideas on how a new company could turn these into strengths. It turns out that diversity and a company’s size are strongly associated with each other. By downsizing our company we ensure that it can operate, albeit in a more restricted market, in a more flexible manner. At the same time problems that arise due to a too hetero- geneous workforce is alleviated, since we mainly focus on Europe as our location of business. In sum, our strategy comprises that we focus on quality and flexibility by adapting a simpler organizational structure and as a result thereof get the possibility to manage diversity proac- tively, which is not possible for UBS in the current situation. Hence, our firm would then be able to have a competitive advantage UBS does not have.

3 Table of Contents

Executive summary ...... 2

A Glimpse of UBS - Introduction...... 5

Organizational Culture ...... 6 UBS’ Culture today ...... 6 Leadership ...... 6

SWOT-analysis ...... 8 Strengths ...... 8 Weaknesses ...... 9 Opportunities ...... 10 Threats...... 11

Our Road to Success ...... 13 The Organization ...... 13 Diversity ...... 13 The Size ...... 13 Recommendations and Implementation ...... 14

Appendix A – The Making of UBS ...... 15 Historical Outline ...... 15 Integration of Different Cultural Values ...... 15

Appendix B – Structure of UBS ...... 17 Management ...... 17 Businesses ...... 17

Appendix C – UBS’ Market ...... 19 Market Description ...... 19 UBS’ Performance in this Market ...... 20 Conclusions ...... 21 Appendix C 1 ...... 22 Appendix C 2 ...... 23

Bibliography ...... 24

4 A Glimpse of UBS - Introduction Being one of the leading financial companies in the world, UBS was founded as a result of the merger of the Union Bank of and the in 1998 (for infor- mation about the history of these two constituents of UBS see Appendix A – The Making of UBS). In 2000 UBS AG acquired Inc. in 2000 to become the world’s largest wealth management firm for private clients.

UBS AG (1998)  2000 merger with Paine Webber Inc (founded 1879)

Union Bank of Switzerland (1912) Swiss Bank Corporation (1872)  1945 merger with Eidgenössische Bank  1995 merger with (founded 1862) . O’Connor & Associates (Chica-  1966 acquisition of Interhandel go)  1985 acquisition of Phillips & Drew . (Chicago) . W. G. Warburg plc (London)

Toggenburger Bank (1863) Winterhur Bank (1862)  1945 merger with Basler Handelsbank (founded 1862)

Source: UBS Handbook 2004: 15 (edited)

Today UBS operates in over 50 countries and in all major international financial centres. UBS’ head offices in Switzerland are in Zurich and Basel, and other main offices worldwide are located in New York, Chicago, Weehawken, Stamford, London, Tokyo and Hong Kong. UBS employs about 67.000 people in America (39 %), Switzerland (38 %), Europe (16 %) and Asia (7 %) (UBS Financial Report 2004, p 3). The Chief executive officer of UBS is Pe- ter A. Wuffli. UBS’ main competitors are CIBC World Markets, , Goldman Sachs , Merrill Lynch, Citigroup and . UBS is listed on the SWX Swiss Stock Exchange, New York Stock Exchange NYSE and Tokyo Stock Exchange TSE. UBS’ credit ratings are good:  Fitch, London: AAA  Moody’s, New York: Aa2  Standard and Poor’s, New York: AA+ (UBS Financial Report 2004, p 2) While Appendix A gives more detailed information about UBS’ history, appendix B describes UBS’ structure and analyses the market which UBS is operating in.

5 Organizational Culture According to Jones & George (2005) Organizational Culture can be defined as the shared set of beliefs, expectations, values, norms, standards for behaviour and work solutions that influ- ence the ways in which individuals, groups, and teams interact with one another and cooper- ate to achieve organizational goals. Often these norms and values cannot be found in written form but are implicit and have evolved over time as guiding lines for right and wrong behav- iours for individuals within the organization (Steinmann & Schreyögg, 2000). This implies that it could be important to have a closer look at the historical process by which the organiza- tional culture of UBS became what it is today. To learn more about UBS’ history and how its values of today evolved, see Appendix A.

UBS’ Culture today UBS today promotes values that have their roots partly in the organizational cultures of its constituting parts. As one can read in the UBS Handbook (2004/2005), Striving for Excel- lence, Responsible Relationships and High Ethical Standards are mentioned as the guiding principles of UBS. Striving for Excellence includes client focus, entrepreneurial leadership, and the pursuit of ambition, energy and fun. With client focus UBS tries to deliver the best services possible by making their clients’ success to their own. To achieve this goal the or- ganization expects from its employees and especially from people in leading positions a high level of entrepreneurial thinking, this is to realise and seize any coming opportunities.

Generally, UBS emphasizes the importance of meritocracy as a guiding value for success within the company. UBS tries to set up relationships with its customers, employees and the society as a whole in a responsible way, which includes adopting a position that focuses on a long-term perspective. Embraced under High Ethical Standards is the pursuit of integrity as the main guarantor of UBS’ reputation, the respect for privacy for both its clients and em- ployees, and the concern for diversity issues. That the values UBS promotes are not only lip service can be see by the manifold programs for example the Employee Assistance Program (EAP) to ensure a responsible relationship with its employees or the Corporate Responsibility Committee that tries to align UBS’ business practices with societal expectations (UBS Hand- book, 2004/2005).

Leadership The term leadership is defined as the process by which an individual exerts influence over other people and inspires, motivates, and directs their activities to help achieve group or or-

6 ganizational goals (Jones & George, 2005). On a managerial level UBS attaches much impor- tance on four sets of leadership skills:  Understanding alignment of values and behaviour with business strategy  Striving for excellence in a cutting edge, entrepreneurial style.  Serving as a role model for integrity  Serving as an effective ambassador - ability to sell the concept of the whole company to inside colleagues and outside customers. Managers are expected to be competent with regard to these skills and to serve as a role model for all employees (Sweeney, 2005). Thus, UBS’ concept of leadership could be described as rather transformational than transactional insofar as people are motivated to act for the good of the company because they understand the importance of their job and have internalized the company’s values and goals. This is emphasised by the importance put on entrepreneurial style which requires UBS’ employees to search actively for new opportunities and to take on responsibilities. Nevertheless one should not neglect the fact that there is a big amount of transactional leading where subordinates are rewarded for high performance (bonuses) and reprimanded for low performance (dismissal), which is quite common in the banking-sector. UBS’ view also comprises a long-term perspective based on the idea that human capital can only reach its full potential when treated with respect (UBS Handbook 2004/2005). In sum, UBS’ view on leadership shows the important role organizational culture plays to motivate and direct people in their actions to achieve the company’s goals.

7 SWOT-analysis Managers perform a SWOT-Analysis to identify an organization’s current situation (its organ- izational strengths and weaknesses and environmental opportunities and threats), in order to be able to develop a strategy to achieve its goals. With regard to UBS we have identified the following points:

Strengths  Human Resources Management UBS employs a system called “Internal Service Quality” (ISQ) in order to keep employees satisfied in their job. This is aiming at increasing customer satisfaction. The idea is that satisfied and motivated employees are a service company’s most important resource and must therefore be valued. Having its roots in UBS organizational values as seen above, the organization recognises satisfied employees as an asset to the company, since they are the ones that will realize its goals, which could lead to a competitive advantage.

 Entrepreneurial Leadership UBS promotes a largely entrepreneurial culture. Entrepreneurs notice growth opportuni- ties and take the responsibilities for mobilizing the necessary resources to capture those. Training and Education is considered an important component of this culture and UBS’ long-term success. UBS is committed to investing in its staff and providing them with the opportunities to maximise their potential and capabilities corresponding to UBS business goals. Particularly, knowledge that will be useful in meeting future challenges of the com- pany is being promoted. (Maag, 2005)

 Clear set Targets When operating, UBS focuses on four long-term targets (one for each quarter; for sea- sonal reasons) designed to deliver continuously improving returns. The actual perform- ance compared to the targets is reported quarterly. A system called “Performance Meas- urement and Management” (PMM) is employed to measure the staffs individual achieved performance at the end of the year against objectives that were agreed on at the beginning of the year. The performance in 2004 of the financial businesses showed record results in net profits of CHF 8044 million, that is an increase of 29%. Overall, revenues increased in all categories. (Financial Report 2004, p. 84)

8  Operating as “one firm” UBS has an “integrated client service model”, which means that all businesses work to- gether as “one firm”, rather than as single operating businesses, to create more value to the clients and therefore contributes to the revenue flows. Employees form internal partner- ships, which helps increase the ability to identify developments across client and business segments. The aim is to serve the client better and hence increase customer satisfaction. The model also helps capture synergies between different components of the businesses. (UBS Handbook, 2004/2005)

Weaknesses  Diversity Diversity is increasingly challenging for management to be managed effectively. The dif- ferent aspects of diversity need to be well researched before they can be managed success- fully. The high amount of recent mergers (Paine Webber Inc., China Bank) may cause problems since it may not have given management enough time to do the necessary re- search on cultural issues or business hurdles. Another diversity issue is the four different cultures and languages of Switzerland, which can be a challenge for management as well. More and more the neutral English language is chosen to overcome those hurdles.

 UBS’ Size Good communication is crucial for a large company like UBS. In order to stay mobile and flexible the firm must have a good communication and management system. UBS largely uses the internet to communicate with other departments, particularly when corresponding to another country. To be able to communicate effectively throughout the organization, UBS is forced to adapt a quite costly information system.

 Financial Risks There are two major internal risks, which can become a weakness: Credit and Liquidity Risks. Credit Risk is the risk that could occur when a client is unable to meet its contrac- tual obligations. That would result in a loss for UBS. Liquidity Risk will weaken the com- pany, if it has insufficient liquidity to meet its liabilities when due, or if it has to compro- mise the ability to respond to market opportunities when meeting liabilities (Financial Re- port, 2004).

9  Legal Problems UBS has been involved in several legal claims, disputes and proceedings in different countries, mainly Switzerland and USA. Such claims arise due to the nature of UBS’ business. They may however cost the company substantial monetary damages, defence expenses, criminal and civil penalties. It may also have an impact on the company’s repu- tation (Financial Report, 2004, p. 17). Often these incidents, like the class-action lawsuits in the context of the unidentified Jewish capital assets in the 90’s, could have been pre- vented with a more proactive behaviour.

Opportunities  Trade and Markets Liberalisation and Deregulation Developments in world financial markets have widely contributed to the expansion and profitability of the banking industry. Even though further significant progresses are not expectable in developed economies, emerging markets represent the most valuable source of future growth due to their current highly centralised and regulated systems. The presence of the World Trade Organisation may also improve and facili- tate transitions towards freer economies.

 Competitors’ Buyout Opportunities Numbers of acquisitions have been made in recent years to strengthen UBS’ position and importance in global wealth and asset management. The strategy of buyouts is predicted to continue and opportunities will come up in the future for this giant of the financial industry.

 Emerging Markets in the Asia-Pacific region By 2030, the combined purchasing power of India’s and China’s consumers is fore- casted to be five times greater than the US’s purchasing power of today (China and India as the consumer markets of tomorrow, 2004). These two economies have strong growth potential and have a large number of opportunities for investors. The recent joint venture between UBS and a Chinese fund management company is a clear sign of the growing interest in the Chinese market and will offer an ideal position for future opportunities alongside further market deregulations.

 Swiss-European Union Relations The recent extension of the European Union from 15 to 25 members in 2004 will cre- ate new business opportunities in the growing Eastern Europe nations. Another impor- 10 tant point to outline is the large number of bilateral agreements between Switzerland and the European Union, which benefit in a large number of ways Swiss businesses’ relations with EU countries. These agreements will also protect the important bank se- crecy for Swiss . The last bilateral agreement in date has been accepted by Swiss voters on September 25 of this year, where Swiss people have accepted their country’s participation in the free movement of labour with the 25 EU members. This positive result will strengthen the nation’s relations with the EU and offer additional opportuni- ties for economic growth.

Threats  Technological Development and Sophistication In their letter to shareholders for the first quarter 2005 (2005, p. 2), UBS’ Chairman and Chief Executive Officer have acknowledged the increasing complexity and impor- tance of technical changes. They recognised the rising exposure of the firm and the po- tential impacts these advances could have on the operational activities.

 Geopolitical and Regional Instabilities and Crisis The global presence of the organisation implicitly means it is vulnerable to any politi- cal, economical, and social instabilities in a particular region or country. It is not an easy thing to predict these issues and firms are powerless in retaining the rise of such threats. Economic instability in emerging markets is another potential matter to con- sider.

 Globalisation Even if it has been argued that trade and market liberalisation will bring multitude of growth opportunities, we have to take into account the drawbacks of this so-called world de-regulation. Both domestic and international competition will be fiercer than ever and pressures to reach effectiveness at lower cost will be a challenging aspect to keep competing with the best in the industry. The competitive strength of UBS will depend on its ability to quickly adapt to market and industry trends (UBS Financial Report 2004 2005, p.17).

 Market Risks UBS defines these risks as dangers of loss due to market fluctuations and other vari- ables (e.g. interest rates, exchange rates, price movements on obligations etc.) (UBS Handbook 2004/2005, 2005, p. 58) These variations would therefore have a possible 11 negative effect on UBS revenues. Market risks occur mainly in the trading activities of the firm. The Investment Bank is thus the part of the organisation under which large losses may take place due to market oscillations. UBS’ answer to these risks has been to nominate a Chief Risk Officer for each of its business groups in order to limit, as- sess and monitor market (and other kinds of) risks.

12 Our Road to Success As shown in the above analysis, diversity issues and the organization’s size are two aspects of UBS that may be a drawback on the bank’s road to success. In the following part we will therefore outline how a new organization could overcome these weaknesses and turn them into strengths.

The Organization Our organization provides investment advices and placements for individual and small busi- ness clients. It operates mainly in Switzerland and has recently expanded its operations into the main European economies. Its size is relatively small with nearly a thousand employees. It started its business in the mid 1990s and has continuously increased its benefits. We believe our organization may be able to turn UBS’ two chosen weaknesses into their advantage.

Diversity Diversity is an issue large and global organizations face more than any others. However, we need to note that all companies have to deal with problems linked to diversity to a certain ex- tent. UBS’ presence in the five continents creates complex issues for Human Resources and business decisions to be made. We have to outline that diversity, when managed effectively, can bring a competitive advantage in creativity and problem-solving abilities. In our case, we will consider diversity as an issue for UBS on the managerial point of view due to the difficul- ties of managing such a large and diverse workforce. Our organization would thus be able to use that weakness to make it an opportunity since it is operating in Europe only where cultural divergences are minor compared to intercontinental ones. A key aspect for our organisation’s success is the strength of our team cohesiveness, characterized by the creation of a learning and innovatory atmosphere, which requires high levels of tolerance within our firm.

The Size UBS’ size may also be a weakness our organization could use as an opportunity. The rela- tively small size of our firm minimises the concerns large corporations have to deal with. However, the recent expansion of the company into some European markets has raised the complexity of managerial decisions and strategies. The flat organizational structure we cur- rently have reduces information systems costs and keeps the quality of information high. On the human relations point of view, our firm can keep human contacts at a personal level and create a unique collaborating working atmosphere that will contribute to the motivation and performance of our staff. These are clear advantages against UBS.

13 Recommendations and Implementation We believe our organization should stay focused in the market it is currently engaged in and slow down its expansionary visions. We would recommend they keep the focused differentia- tion strategy they are presently using. By focusing on investment advices and placements for individual and small business clients, they will be able to build a significant competitive posi- tion in the investment sector. Once that has been achieved they will be capable to start diversi- fying their services and market presence. In order to realize this strategy, management should put emphasis on the flexibility and quality of services to remain high. The firm would then be able to have a competitive advantage large firms do not have.

On the other hand if they choose to enter new markets now, they will take multiple risks and will have to deal with increased competition. Diversity issues would thus be amplified and managerial difficulties would rise. The main drawback is that they would lose the simplicity and the flexibility they can currently benefit from. The issue with keeping a regional business strategy is that our organization may not as yet be able to take opportunities in other markets, especially in rising China and India. Since our current market position is not strong enough to enter other markets, we cannot consider this fact as a real drawback of our strategy.

14 Appendix A – The Making of UBS

Historical Outline The roots of Union Bank of Switzerland and of Swiss Bank Corporation date back very early in Swiss banking history, Union Bank of Switzerland was founded in 1912 by the merger of two regional banks, the and the Winterhur Bank. After World War One it started to expand its business activities to all over Switzerland and also to foreign business, but it took about 50 years until it started its first branches abroad, in London in 1967 and in New York in 1975. At that time, bank’s business areas were corporate and retail clients and asset management for Swiss clients and commercial banking for clients abroad.

The Swiss Bank Corporation was founded in Basel under the name of Basler Bankverein in 1872. In 1897 the bank changed its name to Schweizerischer Bankverein i.e. Swiss Bank Cor- poration (SBC). SBC started its first branches abroad already in 1898 in London and in 1939 in New York, which both are evidence of the bank’s willingness to expand internationally. In 1945 SBC acquired one of Switzerland’s biggest banks, Basler Handelsbank, which was one of the factors which enabled SBC’s nationwide expansion in Switzerland in 1960’s. As for Union Bank of Switzerland, SBC’s main business areas were domestic corporate and retail clients and asset management, and commercial banking for corporate clients abroad (UBS Handbook, 2004/2005)

Integration of Different Cultural Values UBS’ corporate culture and leadership principles can only be fully understood against the background of the fundamental changes the bank experienced over the last 15 years. With the acquisition of Paine Webber in 2000, a decade of transformational change in terms of struc- ture and culture came to an end. Two years earlier, when the Union Bank of Switzerland and the Swiss Bank Corporation merged to create the existing UBS, a clash of different organiza- tional cultures took place. The latter, due to several joint ventures with and acquisitions of American investment banks (eg. O’Connor & Associates, Figure 1) may be characterised as having a very young, dynamic, innovative and team-oriented structure. In addition the princi- ple of meritocracy was deep-seated within the Swiss Bank Corporation (The Making of UBS, 2005). The keys in UBS’ current brand logo have their origin in the old SBC logo and sym- bolize trust, security and discretion – values that are considered to be typically Swiss and that were shared by both banks at the time of the merger. Nevertheless, the Union Bank of Swit- zerland was less internationally oriented and pursued a strategy of organic growth by internal means which influenced its culture insofar as it was less dynamic and more based on seniority

15 than meritocracy. These divergences lead to a difficult integration process which was even intensified with the acquisition of Paine Webber by giving UBS a more American culture imprint (Handbook, 2005). Against this background it is not surprising that cultural diversity is one of the core values within UBS (Talent & Culture, 2002). With the words of Peter Wuf- fli, CEO of UBS: “UBS transformed itself through a series of major transactions and our successful integration of these new businesses. Each move brought very distinct contributions to the group. (...) What has made the strategy successful is that, along with the strategic and financial implica- tions, we carefully evaluated the cultural fit of each organization. Our cultural openness and willingness to learn from a diversity of viewpoints mark the history of UBS and are at its very core, its essence.” (Handbook, 2005/2004, Page 2) As can be see in the SWOT Analysis, however, UBS’ faces some problems with diversity.

16 Appendix B – Structure of UBS

Management

The Chief executive officer is Peter A. Wuffli. Other members of the Group Executive Board are: Chairman and CEO Investment Bank: Huw Jenkins, John A. Fraser (Chairman and CEO Global Asset Management), George Gagnebin (Chairman Wealth Management and Business Banking), Peter Kurer (Group General Counsel), (CEO Wealth Management and Business Banking), Clive Standish (Group CFO), Mark B. Sutton (Chairman and CEO Wealth Management USA).

The Chairman of the Board of Directors is . The Board of Directors is the most senior body of UBS and is responsible for the strategy and management of the company and supervision of UBS’ executive management. In 2004, the Board consisted of ten directors.

Source:www..com (Organisational Structur, n.d.)

Businesses UBS is organized in four different business groups. These are wealth management, invest- ment banking and securities, global asset management, and corporate centre.

Wealth Management UBS is the world’s largest wealth manager with 1.243 billion USD in invested assets world- wide (UBS factsheet, 2005). The purpose is to offer a full range of wealth management ser- vices and products for wealthy clients, including everything “from asset management to estate

17 planning and from corporate finance advice to art banking” (ibid). These services are pro- vided by 11,200 client- and financial advisors worldwide (UBS Handbook 2004/2005, p. 18).

Investment Banking UBS is one of the world’s leading companies in investment banking and securities businesses. It provides full spectrum of services such as equity, equity derivative and bond products; to institutional and corporate clients, governments and financial intermediaries. Investment banking employs roughly 16,000 people in 31 countries and its headquarters are situated in London and New York (ibid, p. 29).

Asset Management UBS is a leading asset manager; employing over 2,600 people in 20 countries (ibid, p. 25). The main offices are found in London, Chicago, New York, Tokyo and Zurich. The goal is to provide a broad base of innovative investment management solutions, in every asset class to all of their private, institutional and financial intermediary clients.

Corporate Centre The aim of corporate centre is to ensure “that the firm operates as a coherent and integrated whole with a common vision and set of values” (USB fact sheet, 2005)

Retail and Commercial Banking UBS services include banking and securities services in Switzerland. UBS is the market leader in retail and commercial ; they have circa 3.5 million individual client accounts, 143,000 corporate clients and 3,000 financial institutions worldwide (UBS Financial Report, 2004, p. 3).

18 Appendix C – UBS’ Market

Market Description It is not an easy task to try to describe the market UBS competes in. It is partly because UBS is a company with many different divisions competing in various markets. The other issue in defining UBS’ market presence is due to the fragmented and complicated nature of financial markets. The market that suites the best their structure is the “Global Private banking”, al- though “Global banking” may be appropriate as well. Since UBS is engaged in business with private, corporate, and governmental customers, we will define the firm as a global private banking corporation. Their market has the following definition: “Global Private Banking companies are corporations acting in at least three continents and offering services to private customers as well as corporation” (based on Datamonitor, Global - Private Banking, 2003 p. 7).

Even though UBS is the leading actor in this market (based on Datamonitor, Global - Private Banking, 2003 p. 13) their market share is only 2.9 % (ibid). This indicates a highly frag- mented market where all the players are surrounded by fierce competition. The development of this marketplace has taken place under the constant influence of local laws and is also re- flecting the delicate nature of the trust needed to leave the management of your assets to somebody else. This might explain the nature of the market.

In 2002 this market had a total value of Table B1 (Source: Datamonitor, 2003, p.12) 15,955.6 billion USD (ibid, p. 9) and a distribu- Region % share tion amongst the regions of the world as seen in 42,3 Asia Pacific 24,2 Table B1. The strong economic expansion the Europe 20,4 world has experienced in the last 60 years is Rest of the world 13,0 Total 100 reflected in table 1. The United States’ largest share of the market is a sign of their current economic dominance. The Asia-Pacific region share is, surprisingly, already above the Europe’s. The emerging nations of the Asia-Pacific will definitely increase this gap in the coming years and reduce the US market share.

In general, world economic growth is a key issue for the potential growth of on a global scale. The world economy has been predicted to grow at a rate of 3.5% (UBS Handbook 2004/2005, p. 10) a year over the next decade. This growth has been identified by UBS as coming from a rising productivity gain resulting of the surfacing of new technologies and trade liberalisation (UBS Handbook 2004/2005, p. 10).

19 UBS’ Performance in this Market To evaluate how UBS is preforming in this market we have compared four key indicators that we feel are important for UBS to be a successful player (debt-to-asset ratio, net profit-to- revenue ratio, return-on-equity ratio and revenue) with two major competitors, Citigroup Inc. and Credit Suisse Group (please refer to appendices C 1 and C 2 for the figures presented in this section). The reason for our choice is that these two organisations are the principal com- petitors by independent sources such as Datamonitor (Datamonitor, Global - Private Banking, 2003) and Hemscott (Dow Jones Reuters Business Interactive LLC, 2005 (trading as Fac- tiva)).

Debt-to-asset Ratio UBS and Credit Suisse Group both have ratios around 97 % and Citigroup has a ratio of al- most 93 %. We have not been able to find an empirical explanation for the divergence in ra- tios between the European companies and the American corporation but differences in local legislation might be the reason. The higher debt-ratio results in a more powerful leverage- effect and makes higher profits possible, but is at the same time riskier.

Net profit-to-revenue Ratio Citigroup has a higher ratio than it is competitors for the entire time-period we have examined which indicates they are more efficient than their competitors, but both UBS and Credit Suisse have increased their ratio in the last couple of years while Citigroup has maintained theirs at an even level. It seems that Citigroup is preforming very efficiently while others are streamlining their operations and catching up.

Return on Equity All three companies have a high level of return on equity with more than 15 %. This reflects the development of the world economy, which has prospered in the last three years. UBS stands out with a very high return of over 23 %. A peer-comparison of ten major competitors shows an average return on equity of 17,4 % (Thompson Analytics – Business School Edition online).

Revenue UBS and Credit Suisse experienced decreasing revenues during 2002 and 2003 while Citi- group increased their revenue at an even pace. In 2004, however, both Credit Suisse and UBS experienced high growth-rates on their incomes. It is partially explained by a weak American dollar but the two companies also had high growth in absolute numbers.

20 Conclusions The Global Private Banking market is fragmented and the actors preform differently from year to year due to different businesses’ combinations. UBS is reliant on interest incomes and makes outstanding profits compared to others in the industry.

All global corporations are diversified into most banking sectors such as lending, wealth man- agement and asset management, which give them the possibility to survive and keep their revenue levels high even in the case of an economical downturn. (This point is proven by the fact that all three corporations are still doing business after the recession of 2000 and 2001.)

The important extent of the activities UBS is engaged in has a main drawback: inflexibility. The large size of the operations requires a tall organisational structure characterised by a long chain-of-command. This may slow down and alter the quality of crucial information. A con- tinuous focus for efficient communication systems developments should be emphasised. This situation however exists for other major corporations and should then not be taken as a com- petitive disadvantage.

21 Appendix C 1

2004 2003 2002 2001 Statement of Citigroup Citigroup Citigroup Citigroup Income UBS CSG UBS CSG UBS CSG UBS CSG Revenue 66187 79635 87049 41977 71594 63796 47323 66246 65552 87470 61621 N.A. Cost of Sales 48985 56899 39682 31819 46424 32475 41028 46858 40884 50859 42692 N.A. Gross Margin 17202 22736 47367 10158 25170 31321 6295 19388 24668 36611 18929 N.A.

EBIT 17202 22736 47367 10158 25170 31321 6295 19388 24668 36611 18929 N.A. Tax 3441 6464 2322 1979 7838 -4 938 6615 -158 2344 6659 N.A. NPAT 13761 16272 45044 8179 17332 31325 5357 12773 24827 34267 12270 N.A.

Financial Position Cash + short term 66559 23556 41334 43883 21149 30808 50975 17326 38400 81177 N.A. 35119 Total Assets 2795778 1484101 1755814,03 1925635 1264032 1247651,83 1638801 1097590 1325972,7 2097017 1051850 1022513 Equity 56371 109291 58458 43866 98014 42227 54100 86718 43559 72834 81247 38921 No of shares Earing per share (All figures in millions of USD)

Exchange rate 31/12(1) 1,6116 1,6116 1,2423 1,2423 1,3875 1,3875 1,6732 1,6732 (the year in question) CHF/USD CHF/USD CHF/USD CHF/USD CHF/USD CHF/USD CHF/USD CHF/USD

(Sources) (1): http://www.oanda.com/convert/fxhistory Average rate on 31/12 each year Annual reports from each company downloaded from their official homepages 12/9/2005 (PDF-file in english) Appendix C 2

UBS Citigroup CSG 2001 2002 2003 2004 2001 2002 2003 2004 2001 2002 2003 2004 Revenue 87470 47323 41977 66187 61621 66246 71594 79635 65552 65552 63796 87049 Revenue groth rate -0,46 -0,11 0,58 0,08 0,08 0,11 -0,03 0,36 Cost of Sales 50859 41028 31819 48985 42692 46858 46424 56899 40884 32475 39682 Gross Margin 36611 6295 10158 17202 18929 19388 25170 22736 24668 31321 47367 Profit rate (E/R) 0,42 0,13 0,24 0,26 0,31 0,29 0,35 0,29 0,38 0,49 0,54 EBIT 36611 6295 10158 17202 18929 19388 25170 22736 24668 31321 47367 Tax 2344 938 1979 3441 6659 6615 7838 6464 -158 -4 2322 NPAT 34267 5357 8179 13761 12270 12773 17332 16272 24827 31325 45044

Financial Position Cash + short term 81177 50975 43883 66559 N.A. 17326 21149 23556 38400 30808 41334 Total Assets 2097017 1638801 1925635 2795778 1051850 1097590 1264032 1484101 1325972,7 1247651,83 1755814,03 Equity 72834 54100 43866 56371 81247 86718 98014 109291 43559 42227 58458 1,6732 1,3875 1,2423 1,6116 1,3875 1,2423 1,6116 CHF/USD CHF/USD CHF/USD CHF/USD CHF/USD CHF/USD CHF/USD (Sources) (1): http://www.oanda.com/convert/fxhistory Average rate on 31/12 each year Annual reports from each company downloaded from their official homepages 12/9/2005 (PDF-file in english)

23 Bibliography

Electronic sources Chart Organisational Structure, n.d. Retrieved on September 24, 2005, from http://www.ubs.com/1/e/about/ubs_group/group.html

Images Entrance hall UBS headquarters in Basel, Aeschenvorstradt [image] Counter hall UBS headquarters in Zurich, Bahnhofstrasse 45 [image] UBS headquarters in Zurich, Bahnhofstrasse 45 [image] UBS in Zurich, Paradeplatz [image] Retrieved on October 17, 2005, from http://www.ubs.com/1/e/media_overview/media_global/images/buildings/buildings_overview.html

Information sheet UBS factsheet n.d. Retrieved on September 25, 2005, from http://www.ubs.com/1/e/about/ourprofile.html

Other Sweeney, M. 2005, UBS – Creating a new corporate DNA, Leadership Newsletter, 4 Re- trieved October 4, 2005 from http://www.dieu.com/Mail.asp?MailID=77&TopicID=787

China and India as the consumer markets of tomorrow, August 23, 2004 Retrieved October 7, 2005 from http://www.ubs.com/1/e/media_overview/media_emea/mediareleases?newsId=65683

The making of UBS - Global leadership through corporate transformation, 2005 Retrieved October 2, 2005 from http://www.ubs.com/1/e/about/history.html

Talent and Culture – The source of our Success, 2005, Retrieved October 5, 2005 from http://www.ubs.com/1/e/about/annual_review/2001/downloadable_parts/pdf_versions_2.html

UBS Handbook 2004/2005 Retrieved on October 21, 2005, from http://www.ubs.com/1/e/investors/annual_reporting2004/handbook.html

Reports UBS Financial Report 2004, 2005, UBS AG Switzerland, Zurich. Retrieved on September 21, 2005 from http://www.ubs.com/1/e/investors/annual_reporting2004/financial_report.html

UBS Financial Reporting First Quarter 2005, 2005, UBS AG Switzerland, Zurich. Retrieved on September 21, 2005 from http://www.ubs.com/1/e/investors/messenger?newsId=65683

UBS Financial Reporting Second Quarter 2005, 2005, UBS AG Switzerland, Zurich. Retrieved on September 21, 2005 from http://www.ubs.com/1/e/investors/messenger?newsId=65683

Global – Private Banking, Datamonitor, Reference Code: 0199-0186, 2003 Retrieved on September 29, 2005 from http://web15.epnet.com/citation.asp?tb=1&_ug=sid+12363CCE%2DCAE6%2D4845%2DAF68%2D0D9D07374A1E%40sessionmgr4+dbs +buh+cp+1+83E5&_us=frn+1+hd+False+hs+True+cst+0%3B8+or+Date+fh+False+ss+SO+sm+ES+sl+0+dstb+ES+mh+1+ri+KAAACBX B00079156+AB10&_uso=hd+False+tg%5B2+%2D+tg%5B1+%2D+tg%5B0+%2D+st%5B2+%2DDatamonitor+st%5B1+%2D+st%5B0+ %2DUBS+db%5B0+%2Dbuh+op%5B2+%2DAnd+op%5B1+%2DAnd+op%5B0+%2D+7D00&fn=1&rn=7

Interview Andreas Maag Executive Director Head of Precious Metals UBS AG Precious Metals Investment Bank Switzerland P.O. Box 2600, CH-1211 Geneva 2 Domicile: Rue des Noirettes 35, 1227 Carouge Tel. +41-22-389 53 00 Fax +41-22-375 49 67 Mobile +41-79-821-40-93 [email protected]

Literature Jones, G. R., & George, J. M. 2005, Contemporary Management, Boston, McGraw-Hill.

Steinmann, H., & Schreyögg, G. 2000, Management: Grundlagen der Unternehmensführung, Konzepte – Funktionen – Fallstudien, Wiesbaden, Gabler.

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