Feb. 9 (Bloomberg) -- UBS AG, the largest Swiss bank, doesn’t plan to abandon investment banking or replace the head of the securities unit, even as it eliminates more jobs, said two people with knowledge of the situation.

UBS’s decision to slash the bonus pool by 80 percent for 2008 fed speculation it might dismantle the investment bank or replace Jerker Johansson, its chief executive officer, said four bankers at the unit. The division’s future is still under review and the situation could change, said the people, who requested anonymity because the talks are confidential.

“There are certain areas in investment banking that a big wealth manager simply has to offer,” said Florian Esterer, a senior portfolio manager at Swisscanto Asset Management, which oversees about $47 billion including UBS shares. “The bank needs to have capabilities to execute trading orders. Whether it needs to have a structured derivatives business or provide big-ticket merger advice, that’s open for discussion.”

After the bonus cuts, employees at the investment bank are waiting to hear from management on the outlook for compensation in 2009 and on UBS’s commitment to the division. A lack of clarity on those points when the company publishes full-year results tomorrow may prompt departures among top employees, the bankers said.

Record Loss

UBS, the European bank hardest hit by the global financial crisis, will probably report a record full-year loss tomorrow of almost 18 billion Swiss francs ($15.4 billion), according to analysts’ estimates. The bank, which received a $59.2 billion lifeline from Swiss authorities in October, said in a Jan. 21 memo to staff that it plans a fourth round of job reductions at the securities division to shrink the fixed-income unit.

Dominik von Arx, a London-based spokesman for UBS, declined to comment.

UBS fell 16 centimes, or 1.2 percent, to 12.82 francs by 10:49 a.m. in Swiss trading, bringing the decline this year to 14 percent. The 64-company Bloomberg Europe Banks and Financial Services Index fell 12 percent in 2009.

The Swiss bank has said it will reduce risk-taking and the balance sheet, scale down the securities unit to complement wealth management and return to profitability this year. The company lowered assets by more than $700 billion since June 2007, announced 9,000 job cuts, and raised $32 billion from investors to replenish capital after $48.6 billion of losses and credit- market writedowns, according to data compiled by Bloomberg.

Propping Up Banks

Financial institutions worldwide have amassed $1.08 trillion of losses and shed 269,000 jobs since the U.S. subprime mortgage market collapsed. Governments in countries including the U.S., Britain, France and Germany have also propped up banks to prevent a wider financial calamity.

UBS reduced its bonus pool to less to 2 billion francs from 9.5 billion francs a year earlier after receiving state funds to help move toxic assets off its balance sheet. The Swiss government wants UBS to move faster in reorganizing its unprofitable investment bank and in stemming client defections from its wealth management business, the world’s largest, a person familiar with the matter has said.

The Swedish-born Johansson, 52, joined last March from New York-based Morgan Stanley, where he co-headed sales and trading. His goal for 4 billion francs in pretax profit at the investment bank, set last May, won’t be reached this year or next, according to analysts’ estimates.

‘Radical Change’

Last month, the heads of the fixed-income unit, named late last year, announced that further “radical change” was needed to return that business to profitability. UBS plans to exit the real estate and securitization, and so-called exotic structured products businesses, Carsten Kengeter and Jeff Mayer said in the Jan. 21 memo.

Alex Wilmot-Sitwell and Rick Leaman, co-heads of investment banking, addressed managing directors worried about the future of the unit following the bonus cuts, said three bankers who listened to the presentation. The executives told bankers they shared their concerns about slumping bonuses and efforts to retain the best talent and would try to gain more clarity.

“UBS may have considered closing its investment bank but dismissed it and this is probably more rumor driven due to a lack of information from management,” said Jason Kennedy, CEO of London-based Kennedy Associates, an executive recruitment firm. “The bank probably isn’t interested in keeping staff happy and there’s also no place for them to go at this point when other banks aren’t paying and there’s pressure on salaries.”

UBS will probably say tomorrow it had a 7.5 billion-franc loss in the fourth quarter, according to the median estimate of 11 analysts surveyed by Bloomberg News. Analysts forecast a 5.3 billion-franc loss at the investment bank and profit declines at the other divisions after clients withdrew money from the wealth and asset management units.

To contact the reporter for this story: Jacqueline Simmons in Paris at

Last Updated: February 9, 2009 05:01 EST