As Zurich-based UBS AG undertakes its third restructuring in less than 18 months, its investment banking arm, Warburg Dillon Read, risks falling behind the competition in the United States and Europe, analysts said Friday.

The analysts' remarks followed an announcement by UBS on Friday that pre-tax profits from private banking declined nearly 50%, to $392 million, during its fiscal third quarter. The performance is forcing a third management shuffle at the company since mid-1998, when Union Bank of Switzerland merged with Swiss Bank Corp. to form continental Europe's second-largest bank, now with assets of $550 billion.

Observers said the almost constant turmoil at the parent company has distracted efforts by Warburg Dillon Read to build market share among investment banks in the United States.

Indeed, at the end of last year, the investment bank ranked 19th in the league tables for all debt and equity underwriting, trailing European rivals such as Deutsche Bank AG, ranked 13th; and Credit Suisse First Boston, ranked fifth; according to Thomson Financial Securities Data.

"The worry for the markets is whether or not they can re-establish themselves, said Keith Baird, a banking analyst at Enskilda Securities in London. "But the problem for them is that the market is no longer willing to give them any credibility."

Growing inroads by U.S. banks and investment banks in Europe is forcing UBS to reinforce its position in its home market, leaving little possibility for any new initiative in the United States in either capital markets or investment banking, analysts said.

It has also triggered increasing speculation that the UBS chairman, Marcel Ospel, might resign soon.

Growing confusion over where UBS is heading, analysts added, has created a fertile terrain for competitors to grab business away. "Commercial banks are going after investment banking business, and competition has gotten much more fierce," noted Evangelous Kavouriadis, an equity analyst at Sanford C. Bernstein & Co. in New York.

"It's becoming much harder for second tier players to gain market share or even hold onto to what they've got," he said.

As part of Friday's management reshuffle, Georges Gagnebin replaced Rudi Bogni as head of private banking. UBS is combining its six operating units into three: investment banking and private equity under Markus Granziol, asset management under Peter Wuffli, and Swiss banking under Stephan Haeringer .

Executives at UBS could not be reached for comment on analysts' remarks. The ongoing fall in earnings at UBS since last year has pushed the company's share price down more than 26% since November, to $257 on Friday.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.