UBS not selling Paine Webber unit yet

BUSINESSTIMES  31 September

(ZURICH) UBS chief executive Oswald Gruebel said that Paine Webber, the bank’s US wealth management unit, is ‘non-core’ but the bank will not sell at present, the Financial Times quoted him as saying. 

‘We’ve had a lot of inquiries from potential buyers, but it wouldn’t make sense to sell at current valuations,’ Mr Gruebel said, according to the report yesterday.

Mr Gruebel also told the newspaper that the bank wanted to cut ties with the Swiss government by buying its way out of a bad bank deal and aimed to return to health within a year.

The bank has locked horns with Switzerland’s financial regulator, FINMA, over its aim to leave the bad bank scheme, under which it pays for protection against big losses on toxic assets, the paper said.

With the credit markets recently recovering, the bank believes that it could take the assets back onto its balance sheet, but conceded that it may not be able to do so until late next year, the newspaper said.

‘It is very expensive,’ Mr Gruebel said of the bad bank scheme in an interview with the FT. — Reuters

UBS performance improving by the day, says CFO

BUSINESSTIMES  1 Oct 2009

(ZURICH) UBS continued to strengthen its capital position in the third quarter and the bank’s underlying performance is getting better all the time, says UBS CFO John Cryan.

‘I’m more bullish on UBS than I have been for a couple of years,’ Mr Cryan told a banking conference in London yesterday, which was broadcast via the bank’s website after the event. ‘The bank’s underlying performance is improving day by day.’

Mr Cryan was upbeat on the positioning of UBS investment banking, seen by some analysts as having missed out on the upswing in markets this year because of the unit’s downscaling after UBS suffered billions in writedowns on illiquid assets and was forced to seek state help.

‘The investment bank has the right scale and scope,’ he said, adding risk management remained on the agenda of the group, the world’s largest wealth manager in terms of assets.

UBS shares traded 0.7 per cent lower at 0953 GMT yesterday, underperforming a 0.6 per cent gain in the the DJ Stoxx European banks index. Local rival Credit Suisse Group AG was 0.2 per cent lower.

Mr Cryan warned that proposals for new international regulations on the amount of debt banks are allowed to take on board, along with higher liquidity requirements, could slow the flow of capital. ‘We think in a number of Western economies it will simply prolong the recession,’ he said, adding that the competitiveness of global banks would be impaired.

Swiss regulators had failed to conduct proper analysis of the economic consequences for the country’s banking industry considering new Swiss rules went further than those for banks internationally, Mr Cryan said, adding to recent criticism of regulators.

‘The timescales don’t appear to be aligned. Switzerland is moving faster,’ he said. ‘The imposition of the leverage ratios at least is a year ahead of others.’

And leverage ratios might not have the stabilising effect hoped for by regulators, he said. ‘A leverage ratio, instinctively, causes a bank to want to use its balance sheet for the most risky assets,’ he said.

Swiss bankers said last week that new capital rules could put the country’s financial industry at an international disadvantage as it struggles to rebrand itself after bank secrecy was relaxed and that it was important for Swiss regulators to coordinate with international colleagues.

Swiss National Bank vice-chairman Philipp Hildebrand in turn warned against returning to business as usual as the economy improves and urged tightening of global regulation. — Reuters

UBS boosts Asia private banking team for ultra rich

BUSINESSTIMES    1 October 2009

SINGAPORE – UBS has redeployed two managing directors to strengthen its team catering to Asia’s super-rich.

Yeong Phick Fui, currently regional market manager for Singapore, will become a senior advisor and ‘dedicate her full attention to deepening relationships with ultra-high-net-worth clients’ in the region, UBS said on Thursday.

Ms Yeong joined UBS in May 2006 from Singapore’s DBS Group, where she was head of the private bank.

UBS has also moved Daniel Harel from its investment bank to become managing director and head of ultra-high-net-worth clients in Singapore.

Ultra high-net worth individuals are typically clients with US$50 million or more in assets to invest. — REUTERS

 

Case Study: Hansson Private Label, Inc.

Expansion and Risk at Hansson Private Label, Inc.: Evaluating Investment in the Goliath Facility

Background:

About Hansson Private Label (HPL)

• Started in 1992 (Purchase of manufacturing assets from Simon Health and Beauty Products)
• Purchased by Hansson for $42 million ($25 million equity & $17 million debt) – Hansson’s largest single investment
• Hansson believed he was paying significantly less than replacement costs for the assets
• Hansson was confident private-label growth will continue

HPL’s development and success:

• Hansson’s focus on manufacturing efficiency, expense management and customer service turned HPL into a success
• Secured most major national and regional retailers as customers
• Conservative expansion of HPL – opening of any new facility only if (>60% capacity utilization)
• Currently, all operating at (>90%) capacity

HPL’s Business Operations & Performance:

• Manufacturer of personal care products (soap, shampoo, mouthwash, shaving cream, sun screen and others) under brand label of HPL’s retail partners (supermarkets, drug stores, mass merchants)
• Generated $681 million (revenue) in 2007 [28% of total wholesale sales of $2.4 billion]

Situation:

• $170 million investment proposal (expand manufacturing capacity of Hansson Private Label [HPL]) to accomodate request by HPL’s largest retail customer to increase their share of private label manufacturing

• • Land acquisition ($16 million)
  • Plant construction ($56 million)
  • Manufacturing equipment ($52 million)
  • Packaging equipment ($24 million)
  • Working capital for yr 1 ($22 million)

• Customer will only commit to a 3-yr contract
• Expect from Hansson a go/no-go commitment within 30 days

Dilemma:

• Needs to determine return on the investment to justify effort and risk
• May risk future opportunities of rapid growth and significant value creation by locking in strong relationship with huge, powerful retailer
• Need to maintain debt at modest level to contain risk of financial distress in the event the company loses a big customer

Perspectives: (Pro-Investment)

• Additional capacity will allow HPL to expand relationship with its largest customer (growing sales in US)
• Generate attractive payback
• Expansion will enable HPL’s growth from addition of new customers
• Deter HPL competitors from expanding production capacity in HPL’s personal care sub-segments

Perspectives: (Con-Investment)

• Making investment and incurring associated debt -> significantly increasing HPL’s annual fixed costs and increase risk of financial distress should sales fall or cost rises (or both)
• Sales (from HPL’s largest customer) may initially increase. However, demand may disappear at end of 3-yr contract

Industry Trends: (Personal Care Product Market)

• Personal care market (hand&body care, personal hygiene, oral hygiene, and skin care products)
• US sales ~ $21.6 billion in 2007
• Volumes increased (<1%) in each of past 4 years
• Dollar sales growth (driven by price increases) averaged growth of 1.7% annually the past 4 years
• Featured numerous national names (high-end to low-end) with considerable brand loyalty
• Private label penetration range (3% in hair care to 20% in hand sanitizers)
• Personal care products are sold mainly through (1) mass merchants, (2) club stores, (3) supermarkets, (4) drug stores and (5) dollar stores
• Over past 15 years, manufactures heavily depended on small number of retailers who had large national presence
• Intense competition for shelf space (~80,000 new products launched each year)

Industry Trends: (Private Label Industry)

• With private label brands, retailers rather than manufacturers controlled production, packaging and production of goods
• Retailers carry private label goods to provide consumers with lower-priced alternatives to national branded goods
• Quality improvements in private label goods led to increased acceptance by customers
• Private label sales exceeded $70 billion in 2007
• Private label products accounted for $4 billion of sales at retail (19% of $21.6 billion), translating to $2.4 billion in wholesale sales from manufacturers

Benefits of Private Label:

• Potential to increase profits by capturing a greater share of value chain
• Manufacturer profits per unit could double those of retailer (esp. if brand was famous)
• Retailers’ cost of goods was 50% lower than branded goods -> can double profit-per-unit sold despite lower selling prices
• Opportunity for growth (sales of private label goods <5% in many product categories)

SWOT Analysis

Porter’s Five Forces