Last year, I read an article in which David Herro outlined his rationale for owning shares of UBS (NYSE:UBS) in his Oakmark International fund. He focused on the value of its wealth management unit, which delivers stable earnings and benefits from the spread of wealth across the globe. Fair enough, but UBS' most recent quarterly results show the bank's abysmal performance in other areas is now tarnishing its crown jewel.

After a fourth straight quarterly loss due to subprime writedowns, UBS' Wealth Management unit suffered net outflows of 19.3 billion Swiss francs ($18.8 billion) -- its first net outflows since the fourth quarter of 2000.

In response, the bank is reversing its "one bank" strategy by giving increased autonomy to its three businesses: Investment Banking, Wealth Management, and Asset Management. The initiative could pave the way to a spinoff or sale of the investment banking business.

Deja-vu all over again?
UBS' mortgage-related losses are another failure of risk management. Yes, the environment is challenging, but UBS has somehow managed to be the biggest loser (excluding Bear Stearns). Again.

Ten years ago, the bank participated in the rescue of hedge fund LTCM with a consortium that also included Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Merrill Lynch (NYSE:MER) and JPMorgan (now JPMorgan Chase (NYSE:JPM)).

Guess which bank had the highest exposure to LTCM? That's right -- UBS lost $664 million in that debacle. That was on the heels of a 1997 loss of approximately $320 million in equity derivatives and proprietary trading.

Is the universal bank dead?
With that sort of record, it's easy to see why the investment banking unit is producing negative synergies with the other activities at UBS, i.e. the bank as a whole is worth less than the sum of its parts.

Between UBS and Citigroup (NYSE:C), the current crisis is an opportunity to review the merits of the "financial supermarket" model. UBS is pointing the way for Citigroup by splitting wealth management from investment banking -- Citi CEO Vikram Pandit should be taking notes, instead of hewing to his predecessor's "one bank" strategy.

Where to stand on UBS? Not "on" -- I prefer "away from."
Some very smart value investors have been burned by UBS. Mason Hawkins and Staley Cates (of Longleaf Partners Funds) called their purchase decision an "unforced error." For my part, I'd rather watch this fascinating case study play out from the sidelines, and focus on lower-hanging investment fruit.

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Alex Dumortier, CFA has no beneficial interest in any of the stocks mentioned in this article. JPMorgan Chase is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletters today, free for 30 days.The Motley Fool has a disclosure policy.