Zurich - UBS unveiled plans to wind down its fixed income
business and fire 10 000 bankers in one of the biggest bonfires of finance jobs
since the implosion of Lehman Brothers in 2008.
The move will focus the Zurich-based lender and wealth
manager around its private bank and a smaller investment bank, ditching much of
the trading business that saw it lose $50bn in the financial crisis and one
suspected rogue trader lose $2.3bn last year.
Chief Executive Sergio Ermotti, a former Merrill Lynch
banker who took over after the trading scandal, is spearheading the three-year
investment banking overhaul that is aimed at saving 3.4 billion Swiss francs,
on top of existing cuts of 2 billion francs.
The Swiss bank will separate many fixed-income activities in
order to wind down positions in businesses it will exit as they are no longer
profitable due to far tougher capital rules on riskier business introduced
after the crisis.
Current investment bank co-head Carsten Kengeter will leave
UBS’s top management board to head the discontinued unit.
The remaining investment bank, comprised of equities,
foreign exchange trading, corporate advice, and precious metals trading, will
be run by Andrea Orcel, a recent Ermotti hire from Bank of America who
currently co-runs the unit with Kengeter.
“The net impact of all these changes will be
transformational for the firm,” chairman Axel Weber and Ermotti told
shareholders in a letter. “Our overall earnings should be less volatile, more
consistent and of higher quality.”
The measures translate to a 15% staff cut, taking UBS’s
overall staff to 54 000, from 63 745 now.
Roughly 2 500 jobs will be cut in Switzerland, with the
remainder mainly in London and the United States, where UBS runs considerable
trading operations out of Stamford, Connecticut.
A smaller investment bank will leave UBS to focus on its
private bank, which looks after the affairs of rich people. It is the
second-largest operation of its kind in the world after Bank of America with
1.6 trillion francs in assets.
UBS shares, which soared 7.3% on Monday in anticipation of
the announcement, were indicated to open up 0.9% in an otherwise weaker market,
according to pre-market indications from bank Julius Baer.
“Overall, I think it’s a good move to abandon activities
which don’t earn anything and concentrate on those which create value for
shareholders,” Bank Sarasin analyst Rainer Skierka said. He rates UBS stock at
Investment bank losses
UBS was one of the banks hardest hit by the financial crisis
when its fixed-income unit racked up more than $50bn in losses after gorging on
subprime securities, forcing it to seek a bailout from the Swiss government in
After settling a damaging US tax probe in 2009, the bank had
just started to rebuild client confidence when the $2.3bn trading scandal
surfaced in September last year.
Kweku Adoboli, who worked on the bank’s London-based
exchange-traded equities funds desk, has pleaded not guilty to two counts of
fraud and four of false accounting over the costly bets. His trial is under way
Ermotti’s overhaul comes against the backdrop of far tougher
regulation on riskier securities trading activities, and represents a return to
advisory roots stemming from UBS’s purchase of Warburg, a British merchant
bank, in 1995.
The expected UBS cuts will add to existing cuts of 3 500
jobs, part of the tens of thousands of jobs the financial sector has shed
globally since the financial crisis of 2008.
The bank aims to pay out more than 50% of profits to
shareholders from 2015, after paying a symbolic dividend of 0.10 francs a share
last year. It has put away funds in the third quarter for an unspecified
dividend this year, financial chief Tom Naratil told journalists.
The costs related to the investment banking split will also
lead to a fourth-quarter and full-year loss, when taken together with charges
on the bank’s own debt, UBS said.
UBS’s private bank also faces challenges, with profits
falling as Swiss banking secrecy is weakened by repeated demands from foreign
governments determined to recoup tax on undeclared funds held in offshore
The unit secured 7.7 billion francs in net new money from
clients in the third quarter, which represents the highest result in a third
quarter - traditionally a slow one for the business due to summer holidays - in
UBS’s rival Credit Suisse said last week it was also cutting
more costs as part of efforts to bolster its profits and capital position.
UBS swung to a third-quarter net loss of 2.172 billion
francs, hit by the restructuring charges as well as 863 million francs in
charges on the value of its own debt. Analysts in a Reuters poll had forecast a
net profit of 457 million francs.
UBS targets a drop in risk-weighted assets to below 200
billion francs by the end of 2017, from 301 billion currently. Of this the
investment bank will soak up roughly 70 billion, less than half of what it
accounts for today.