SWISS BANK UBS unveiled plans yesterday to fire 10,000 staff and wind down its fixed-income business, returning to its private banking roots as it adapts to tough capital rules that make it harder to turn a profit from trading.
Zurich-based UBS will focus on wealth management and a smaller investment bank, ditching much of the trading business that ran up $50 billion (€38.5 billion) in losses in the financial crisis.
Dozens of traders were stopped from entering the bank’s London offices yesterday. Some staff found their employee cards no longer worked at the turnstile and were then escorted to human resources, according to sources in the bank. They received their personal items in a bag with a letter saying they would get two weeks’ paid leave, after which they were to pick up their redundancy package. Several tweeters revived “U’ve Been Sacked,” an acronym for UBS that was devised in 1998 after it fired hundreds of staff following the merger of two big Swiss banks to form today’s UBS.
Chief executive Sergio Ermotti, a former Merrill Lynch and UniCredit banker, is leading the three-year overhaul aimed at saving 3.4 billion Swiss francs (€2.8 billion), on top of cuts of 2 billion francs.
Former investment bank co-head Carsten Kengeter will lead the isolation and winding down of its fixed-income activities that are no longer profitable as a result of strict capital rules on riskier business introduced after the financial crisis.
The remaining investment bank – handling equities, foreign exchange trading, corporate advice, and precious metals trading – will be run by Andrea Orcel, a recent hire by Mr Ermotti from Bank of America, who co-ran the unit with Mr Kengeter until yesterday. “This decision has been hard but it is necessary to create a UBS that is fit for the future,” Mr Ermotti said. “The business model we are creating will be unique in the banking industry.”
The measures translate to a 15 per cent staff cut, taking UBS’s overall staff to 54,000, from 63,745 now, already down from a 2007 peak of 83,500 as banks have shed tens of thousands of jobs globally since the financial crisis of 2008.
Of the job cuts, 2,000 will be front-office investment banking staff, the revenue generators. Cuts among support staff will bring the layoffs to more than 5,000 in the securities unit alone, Mr Ermotti said in Zurich. About 2,500 positions will go in Switzerland, slightly more than that in the United States, and the rest in Britain, he said.
A smaller investment bank will leave UBS focused on its private bank, which looks after the affairs of the wealthy. With 1.6 trillion Swiss francs in assets, it is the second-largest operation of its kind in the world after Bank of America.
UBS shares, which soared 7.3 per cent on Monday in anticipation of the announcement, climbed more than 4 per cent to 13.89 yesterday in exceptionally heavy trading, their highest since July 2011, compared with a 0.7 per cent rise for the European bank sector index.
“This is a transformational change for UBS, which investors wanted to happen for a long time,” said Kepler Capital Markets analyst Dirk Becker. “After the completion of this downsizing, UBS is an attractive investment case, but we still believe the execution risk must not be underestimated.”
UBS, which took a government bailout in 2008 after more than $50 billion in mortgage losses, is effectively admitting the failure of an attempt to crack the fixed-income big league launched a decade ago by former chairman Marcel Ospel.
The bank took a $2.3 billion hit last year blamed on trader Kweku Adoboli, now on trial on charges of fraud and false accounting. Deutsche Bank said on Tuesday it hopes to benefit from the UBS cuts as its investment bank delivered record third-quarter sales and trading revenue.
Credit Suisse said last week it was also cutting more costs to boost its profits and capital but did not announce the same kind of radical restructuring as UBS.
– (Reuters)
