UBS executives announced today their plans to split the banking giant. This may mark the end of an era in finance.
Pioneered by Sandy Weill at Citi in the 1980s and 1990s, the "supermarket" model of integrated banking spread quickly. Mergers upon acquisitions upon takeovers upon garbage picking created massive financial institutions offering all services to all investors. If there was a business somewhere that someone was making a profit on, the global investment banks wanted a slice. They justified the size by the synergies created (and thus money saved), streamlining research, capital and operations.
Even well before the credit crunch, however, analysts and investors started asking whether loss making divisions were worth the scale created, as weak performance in some divisions dragged down core, profitable businesses in others. For UBS, its investment banking division has been a recurrent drag on the venerated global wealth management business its reputation was built on(recent scandals- here and here- aside). Citi's shareholders have been asking similar questions for years.
As the credit markets have evaporated over the past 12 months, and investment banking divisions have suffered multi-billion dollar losses on CDOs and other securitized products, many banks are shedding. The era of the financial supermarket may be coming to an end.