Whither the UBS Investment Bank?

What with all the recent upheavals over at UBS, it probably made sense for chairman Marcel Ospel to go on the record saying that the bank won't spin off its underperforming investment-banking arm. Quite the contrary, he says: UBS intends to put in "additional investment" he's quoted as saying, "with the goal of strengthening the group's position among the top five in investment banking."

There are three main approaches that UBS could use here. The first is to spend a lot of money on hiring the very best professionals. UBS has tried this in the past, with relatively little success, largely because the very best professionals tend to understand that they will have better careers overall if they stay at Goldman Sachs. What's more, hedge funds are now able to outbid any investment bank, making poaching bankers even more difficult.

The second approach is to grow by acquisition – which is essentially the route that UBS has taken to get to its present position. It's bought various investment banks along the way, including SG Warburg and Dillon Read (via its acquisition of Swiss Bank) and PaineWebber. There are certainly a few investment banks which are small enough to be swallowed easily by UBS: Lehman Brothers and Bear Stearns are both talked of often as takeover candidates. But according to Reuters, "Ospel said acquisitions in the U.S. market were more likely to be in the wealth management field than in investment banking." So we can probably rule this one out for the time being.

Which leaves the third approach, which is to give the investment bank much greater access to UBS's enormous balance sheet. This is the approach which Citigroup has taken to rise to the top of the M&A league tables, and it's tantamount to winning by brute strength, rather than any particular skill. Still, if you've got that kind of strength, it does make a certain amount of sense to use it.

By all accounts, fomer CEO Peter Wuffli found it difficult to allocate more capital to the investment bank. Maybe his successor, Marcel Rohner, will have more luck. Or maybe the attempt to grow the investment bank will turn out to be more theoretical than real. Rohner is a veteran of UBS's buy side; it's not yet clear that he has a lot of love or understanding for the sell-siders in New York.