UBS faced a fresh call to separate its investment banking operations and wealth management division at an investor meeting on Thursday, after activist investor Knight Vinke Asset Management demanded a review of the Swiss bank's structure.

The surprise intervention by New York-based Knight Vinke comes six months after UBS decided to pull out of the most risky areas of investment banking and just days after first-quarter results beat expectations, giving investors some reassurance that the strategy was working.

One top ten shareholder dismissed Knight Vinke's argument that UBS's investment bank was holding back its wealth management arm, which attracted the most customer money in six years in the first quarter of this year.

"I would not buy the argument that one side is preventing the other side from reaching full potential. For sure, there was a phase where that was the case because of the way the investment bank was run but to me, UBS is learning from past mistakes and is moving forward," said the investor, who declined to be named.

UBS said it would listen to the arguments and ideas of its shareholders and discuss them at the annual general meeting, which was being held on the outskirts of Zurich.

Switzerland's largest lender has opted to stick with a pared-back version of the so-called universal banking model in the wake of a slew of trading scandals and huge losses arising from the 2007-09 financial crisis, withdrawing from most areas of fixed income and axing 10,000 staff.

A previous campaign to radically restructure UBS by former president Luqman Arnold fell apart when Lehman Brothers collapsed in September 2008. Arnold's investment fund's stake in UBS was held by Lehman Brothers meaning he could not access the shares when the U.S. investment bank went bust.

Shares in UBS were down nearly one percent at 16.44 Swiss francs, underperforming a flat European banking index.

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Knight Vinke has made a name for itself by targeting corporate titans, including a high-profile two-year campaign against HSBC's U.S. consumer finance business, and advises some of the world's largest pension funds and sovereign wealth funds.

In a letter in Thursday's Financial Times newspaper, its chief executive Eric Knight said UBS's investment banking activities still posed risks for its wealth management arm and their union was preventing each from reaching full potential.

"It is argued that the investment bank brings cross-selling opportunities to the wealth management business - and to a limited extent this may be true. However, whatever benefits there may be need to be viewed in the wider context of the risks that the investment bank brings to the group as a whole."

Knight Vinke, which owns just less one percent of Switzerland's largest bank, said the best owners of UBS's investment bank were probably its management and employees.

"This is a discussion that is best had when all the businesses are doing well - as is the case today - and the board needs to be encouraged to act quickly and decisively so as not to lose the opportunity," it said.

(For the full text of the letter click on:)

Knight would need the support of other investors to force change at UBS but another shareholder thought that unlikely.

"Most people would stop short of demanding a full blown break up. The restructuring that kicked off in November last year tackling the most troublesome areas has been producing good results, and the latest results from the investment bank were encouraging," said the top 30 investor.

The break-up call has overshadowed a debate on executive pay at UBS, which angered some shareholders this year by giving investment bank chief Andrea Orcel a $26 million signing-on fee.

Former Bundesbank president Axel Weber, who has been UBS chairman for the past year, will have to navigate the criticism on strategy and pay at the AGM. Some of it could be personal, after he pocketed 4 million Swiss francs ($4.3 million) for joining, on top of his basic pay and an award of UBS shares.

Fed up with corporate excess, Swiss voters pushed through some of the strictest controls on executive pay this year, including the introduction of binding shareholder votes on compensation from next year.

"Chairman Weber talks of a new corporate culture and that managers should set an example, but he himself is taking eight million Swiss francs," retail investor Brigitta Moser-Harder, who has campaigned against UBS bonuses, told Reuters.

(Additional reporting by Steve Slater; Writing by Carmel Crimmins; Editing by Jane Merriman and Mark Potter)