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 $50 billion in the financial crisis and one suspected rogue trader lose $2.3 billion 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 ($3.63 billion), 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 percent 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 percent on Monday in anticipation of the announcement, were indicated to open up 0.9 percent 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 neutral.
INVESTMENT BANK LOSSES
UBS was one of the banks hardest hit by the financial crisis when its fixed-income unit racked up more than $50 billion in losses after gorging on subprime securities, forcing it to seek a bailout from the Swiss government in 2008.
After settling a damaging U.S. tax probe in 2009, the bank had just started to rebuild client confidence when the $2.3 billion 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 in London.
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 percent 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 accounts.
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 five years.
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.