UBS's Big Mistake: Letting Moelis Go

by Derek Loosvelt | June 08, 2011

As reported in today's Times, UBS is considering ditching its Stamford outpost, which it has inhabited for 15 years and where it famously built the world's largest trading floor, and making a move a few miles south, to Manhattan, in order to be closer to clients and to better attract top young talent who want nothing less than to spend their twenties in Stamford, Connecticut.

ken moelisThe move, which wouldn't happen until 2015 (although some employees are relocating or already have relocated to New York City), underlines the decline the Swiss bank has been on since March 2007, a date that doesn't coincide with the beginning of the financial crisis but with the decision by UBS management not to allow Kenneth Moelis, then a rising investment banking dealmaker and the head of UBS's banking business in the Americas, to use the firm's balance sheet when putting together deals. Which resulted in Moelis flipping off UBS, quitting, and then starting his own, eponymous firm (and, by the way, prospering).

After Moelis left UBS, many of the big bankers he brought on to surprisingly quickly build UBS into a top firm (UBS led the Street in global IPO offerings in 2006 and was top five in many other categories, including M&A) also left the firm, either following their boss to Moelis & Co., or joining competitors.

Soon after, of course, the financial crisis hit UBS -- as well as every other big investment bank on the Street, although it hit UBS particularly hard, as the bank was near-nakedly exposed to the subprime mortgage security market, having taken a large long position, which resulted in several billions of dollars in write-downs.

Around the same time, along with its bottom line, UBS's reputation was hit by a widely-publicized lawsuit, claiming that many of the bank's wealth managers helped clients hide billions of dollars from being taxed. The case resulted in UBS taking a blood bath in the media and in the courts, and it wasn't long until the firm lost more money, as assets began to pour out of the firm's wealth management unit by the tens of millions.

And yet, the firm didn't die. Although, it was securely back where it was before Moelis joined the firm in 2001: the second-tier of Wall Street firms, and no longer hovering in the top five on investment banking league tables but straddling 10th place in most.

Which is why, lately, there have been rumors that the firm might get rid of, or severely cut back, its U.S. investment banking business. And why it is now resorting to measures like packing up the world's largest trading floor and moving to Manhattan.

(NYT: Regretting Move, Bank May Return to Manhattan)

(Related: Exodus at UBS)

Filed Under: Finance


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