Despite Switzerland’s famed neutrality, the war hurt the bank by virtually shutting down its international businesses. And while banks in major belligerent countries like the United States and Germany began to recover from the Depression because of wartime economic expansion and their governments’ need for emergency financing, UBS’s performance continued to lag.
Once the war ended, however, so did the bank’s slump. Only a few months after Germany’s defeat in 1945, it acquired Eidgenóssische Bank, a prominent Zurich financial institution. This acquisition pushed UBS’s assets to SFr1 billion and established it as one of Switzerland’s largest banks. UBS also established a presence in the United States for the first time when it opened a representative office in New York in 1946. But the bank’s strategy during the postwar years concentrated on developing its domestic business. It continued to open branches and acquire smaller institutions within Swiss borders throughout the 1950s. By 1962, UBS’s assets had reached SFr7 billion and the bank had 81 branch offices.
In 1965 UBS and other major Swiss banks found themselves unwillingly embroiled in an international controversy when nervous investors sparked a run on the British pound. Swiss banks, through their reputation as the world’s safest money havens, had accumulated substantial deposits in pounds sterling, and it was from them that unwanted pounds were withdrawn for sale on the currency markets. The banks themselves sank $80 million into stopping the panic, but the British were not impressed—Labor Party politicians derisively labeled them “the gnomes of Zurich.” In response, UBS Chairman Alfred Schaefer complained to Time, ”These campaigns really wound us. At times it makes one melancholy.”
UBS underwent a burst of expansion in the late 1960s funded largely by the 1967 acquisition of Interhandel, a Swiss financial company possessing substantial cash holdings from the sale of its majority stake in GAF, the American chemical concern. In 1968 UBS acquired four small domestic savings-and-mortgage banks, strengthening its mortgage-banking operations. In 1969 it diversified into consumer lending, leasing, and factoring through the acquisition of four more domestic financial companies: Banque Orea, Abrí Bank Bern, Aufina Bank, and AKO Bank.
UBS opened its first foreign branch office in 1967 in London. It continued to expand its overseas business in the 1970s, establishing Union Bank of Switzerland Securities Limited in London in 1975 and UBS Securities Incorporated in New York in 1979. Both of these subsidiaries were devoted to gaining a share of foreign underwriting markets.
But UBS has lagged behind its competitors in expanding its foreign operations in the past 20 years, when internationalization has been the watchword of the financial industry all over the world. It was the last of the three largest Swiss banks to establish a branch office in the United States, which it finally did in 1970, in New York. Its foreign securities subsidiaries also remained small compared to those of Swiss Bank Corporation and Credit Suisse. UBS’s caution in testing international waters, however, was a longstanding matter of policy. The bank’s directors still remembered how the sudden termination of foreign business in World War II had delayed its recovery from the Depression, and concentrated instead on building up its domestic business long after its competitors had begun to internationalize.
As a result, UBS began losing what international business it had in the 1980s because its operations were relatively unsophisticated. It was also faced with the fact that it had just about reached the limits of expansion in the domestic banking arena. So in the middle of the decade, it made a fresh assault on the Eurobond market in an attempt to become a leading European underwriter. In February, 1985, UBS surprised Eurobond underwriters when it brought major bond issues worth a total of $850 million for Nestlé, Rockwell, IBM, and Mobil to market at unusually low yields. The low yields were meant to attract corporate customers who liked the prospect of paying lower interest rates on their issues, but left competing underwriters astonished by UBS’s aggressiveness and the high prices that it charged for the bonds. The general manager of a rival bank attributed its approach to the Eurobond market to the influence of the preponderance of Swiss army officers in UBS’s hierarchy. “They make immensely careful preparations before making a move, and then they throw all their power into an advance,” he told Euromoney in 1984.
UBS did not stop there in its late drive to internationalize. Anticipating the 1986 deregulation of Britain’s financial markets, it acquired the London brokerage house Phillips & Drew in 1985. In 1986 it bought the West German bank Deutsche Länderbank, which it renamed Schweizerische Bankgesellschaft, and established a Phillips & Drew office in Tokyo. And in 1987, it opened an Australian merchant-banking subsidiary, UBS Australia Limited.
During the summer of 1987, UBS sought to solidify its position in the London markets with a bid to take over the British merchant banker Hill Samuel. The deal fell through, however, when UBS refused to accept Hill Samuel’s shipbroking and insurance services in the deal along with its core merchant-banking businesses. Rumors circulated that UBS might then go after Kleinwort Benson, a British merchant bank that was reeling at the time from a slump in the bond market and a series of unfortunate acquisitions. As it turned out, however, UBS was having enough trouble digesting Phillips & Drew. The brokerage subsidiary lost £48 million as a result of the October, 1987 stock market crash, but even before then an inadequate settlement system had cost it £15 million when a rush of bull market-inspired orders proved overwhelming. Between April, 1987 and February, 1988, UBS spent a total of £115 million on Phillips & Drew.
Still, UBS seems prepared to stick it out in the British securities market. And back home, it appears to be in little danger of losing its dominant position as one of Switzerland’s three largest banks. The Big Three have a virtual stranglehold on the domestic securities brokerage and underwriting businesses, and they often behave as members of a club rather than competitors. As a syndicate, their power is quite considerable. Despite sentiment emanating from the regulatory Swiss National Bank in 1989 that there should be greater competition in the nation’s financial markets, UBS’s future position seems quite secure.
Principal Subsidiaries
AKAG Anlage-und Kapital-AG (99%); AKO Bank; Argor-Heraeus S.A. (75%); Aufina Leasing & Factoring AG; Banco di Lugano; Bank Aufina; Bank Cantrade Ltd. (85%); Saudi-Swiss Bank (51%); Bank Rohner Ltd. (80.3%); Cantrade Participation Ltd. (85%); Credit Industriel SA; Eidgenossische Bank Beteilgungs-und Finazgesellschaft (99.9%); Intrag Ltd. NZ (85%); Orea Bank Ltd.; Swiss Mortgage and Commercial Bank (99.5%); “Thesaurus” Continental Securities Corporation (99.9%); UBS Finanzholding AG; UBS Phillips & Drew Ltd. (U.K.); Schweizerische Bankgesellschaft (Deutschland) A.G.; UBS Australia Ltd.; Union Bank of Switzerland (Canada); Union Bank of Switzerland Finance N.V. (Netherlands Antilles); Union de Banques Suisses (Luxembourg) S.A.; Union Bank of Switzerland (Panama) Inc.; UBS Asset Management Ltd. (U.K.); Union Bank of Switzerland (Trust and Banking) Ltd. (Japan); Union Bank of Switzerland (U.K.) Ltd.; Union Bank of Switzerland (Underwriters) Ltd. (Bermuda); UBS Finance Inc. (USA); Phillips & Drew International Ltd. (U.K.) (50%).
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