UBS to slash 10,000 jobs in fixed income retreat
Zurich, October 30, 2012
UBS unveiled plans on Tuesday to wind down its fixed income business and fire 10,000 bankers, as it adapts to tougher capital rules that make it more difficult for investment banks to turn a profit since the financial crisis.
Zurich-based UBS will focus on its private bank and a smaller investment bank, ditching much of the trading business that ran up $50 billion in losses in the financial crisis, as well as a $2.3 billion hit, which trader Kweku Adoboli, now on trial on charges of fraud and false accounting, is accused of running up.
Chief Executive Sergio Ermotti, a former Merrill Lynch and UniCredit banker who took over after the Adoboli affair last year, is leading the three-year overhaul, which is aimed at saving 3.4 billion Swiss francs ($3.6 billion), on top of existing spending 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 tougher capital rules on riskier business introduced after the crisis.
The remaining investment bank - 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 had co-ran the unit with Kengeter until Tuesday.
"This decision has been hard but it is necessary to create a UBS that is fit for the future," Ermotti said. "The business model we are creating will be unique in the banking industry."
The measures translate to a 15 percent 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. About 2,500 positions will go in Switzerland, slightly more than that in the United States, and the rest in Britain, Ermotti said.
UBS stopped dozens of fixed income traders from entering its London offices on Tuesday, a source at the bank said.
Some staff turned up to work to find their employee cards no longer worked at the turnstile and were then escorted to human resources, according to various sources with knowledge of the situation.
Once at human resources, they received their personal items in a bag with a letter saying they would have two weeks paid leave, after which they were to return to pick up their redundancy package, the sources 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 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 percent on Monday in anticipation of the announcement, were up another 5 percent at 13.79 francs by 1050 GMT in exceptionally heavy trading, their highest since July 2011, compared with a 0.7 percent rise for the European bank sector index.
UBS, which took a government bailout in 2008 after more than $50 billion in mortgage losses, is effectively admitting that an attempt to crack the fixed-income big league has failed.
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.
But some analysts said other banks might be forced to follow suit even though the UBS strategy was risky.
"While other banks like CS are still sticking to their investment banks, which do not even earn their cost of equity, UBS takes the lead in responding adequately to investors' demands," said Sarasin analyst Rainer Skierka.
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