UBS Bankers Face Dwindling Options as Securities Unit Prepares to Shrink

As UBS AG (UBSN) prepares to shrink its investment bank following a $2.3 billion loss from unauthorized trading, bankers pushed out or looking to leave may find few opportunities as Wall Street rivals slash jobs.

Switzerland’s biggest bank said on Sept. 24 that its investment bank will carry less risk and use less capital in the future, after the loss by a trader on the Delta One desk in London spurred demands to scale back the division.

“As soon as the news about Delta One came in, CVs from UBS started flying,” said Jason Kennedy, chief executive officer of London-based recruiter the Kennedy Group, using an abbreviation for resumes. “There are some very good people at UBS and they will be in demand. But for many there’s nowhere to go.”

Even before the trading scandal, Zurich-based UBS had announced plans to cut 3,500 jobs, with 45 percent of those reductions at the investment bank, as market turmoil curbed client activity and rising capital costs made certain businesses less attractive. The firm now may accelerate that shrinkage, throwing more bankers out of work at a time when European rivals including HSBC Holdings Plc (HSBA), Barclays Plc and Credit Suisse Group AG (CSGN) have announced plans for more than 70,000 cuts.

“Almost certainly you’re going to see more job losses” at UBS, Christopher Wheeler, a Mediobanca SpA analyst in London, said in an interview with Bloomberg Television’s Francine Lacqua. Still, UBS may not face a brain drain, he said. “This is a tough market where most banks are letting people go.”

Job Cuts Jump

UBS rose 46 centimes, or 4.3 percent, to 11.09 francs by noon in Swiss trading, trimming the decline this year to 28 percent. The stock has erased all of the losses it suffered in the wake of the trading loss.

The biggest global banks are trimming jobs the fastest since 2008 as companies seek to improve profitability, regulators boost capital requirements and a weakening economy squeezes revenue.

Financial firms have announced more than 120,000 cuts this year, while hiring in some markets or businesses, data compiled by Bloomberg Industries show. London-based HSBC, Europe’s largest bank, said last month it will shed 30,000 workers. Bank of America Corp., the biggest U.S. lender by assets, said Sept. 12 it also will eliminate 30,000 jobs in the next few years under a project to remove about $5 billion in annual costs.

Goldman Sachs

Goldman Sachs Group Inc. (GS), which on July 19 unveiled plans to reduce annual costs by $1.2 billion and cut about 1,000 jobs, may slash costs by an additional $250 million as revenue dwindles, the New York Times reported today. Analysts at Barclays Capital, Bank of America and Sanford C. Bernstein & Co. estimate that Goldman Sachs will report a third-quarter loss, only the second quarterly loss in its 12 years as a public company. Stephen Cohen, a spokesman for Goldman Sachs in New York, declined to comment.

Oswald Gruebel, 67, who rebuilt UBS’s investment bank following more than $50 billion of subprime-related losses during the credit crisis, stepped down as CEO on Sept. 24. He was replaced on an interim basis by Sergio Ermotti, 51.

UBS will announce further changes to the investment bank in a presentation to investors scheduled for Nov. 17.

Credit businesses that haven’t been very profitable and that will be affected most by rising capital requirements under new rules from the Basel Committee on Banking Supervision are the most apt to be cut back, analysts said.

‘Doing Some Thinking’

“They’re likely to be downsizing in fixed income across securitization, exotic derivatives and structured credit,” said Dirk Becker, a banking analyst at Kepler Capital Markets in Frankfurt who recommends investors hold the stock. “The expansion may be over in those areas and if I worked there, I’d be doing some thinking.”

UBS is likely to keep its equities, foreign exchange and commodities businesses, especially in Asia, said Peter Hahn, a professor of finance at London’s Cass Business School and a former managing director at New York-based Citigroup Inc. That would complement the bank’s wealth-management operations, which account for about 40 percent of revenue.

“For UBS, the future has to lie in Asia, related to entrepreneurs and their wealth,” Hahn said. UBS has the world’s third-largest wealth-management business after Charlotte, North Carolina-based Bank of America Corp. and New York-based Morgan Stanley, according to Scorpio Partnership, a London-based provider of research and industry analysis.

Bonuses Imperiled

The trading loss more than erases the 1.21 billion Swiss francs ($1.3 billion) in pretax profit earned at the investment bank in the first half of the year, imperiling bonus payments for those bankers who do keep their jobs, recruiters and analysts said. For Carsten Kengeter, who runs the investment bank, the challenge will be to hold onto his top performers, even as he shrinks the division.

“They could lose people they don’t want to lose,” said Jonathan Nicholson, a managing director in London at recruiting consultant Astbury Marsden. “The bank now needs to make decisions on where to invest. Everything is up for review.”

Morale within the investment-banking division took a blow from the trading scandal, and dropped even further following Gruebel’s departure, according to an executive who requested anonymity because he wasn’t authorized to speak publicly. The bank suffered defections earlier this year that included four of the 10 business heads that reported to Kengeter.

Fraud Charges

UBS may have to pay out loyalty bonuses to staff in the investment bank to encourage them to stay on and help wind down certain units, according to Peter Thorne, an analyst at Helvea SA, a Geneva-based brokerage.

Dominik von Arx, a spokesman in London, declined to comment on what steps UBS is taking to retain staff. UBS employed 17,776 people at the investment bank at the end of the second quarter, and 65,707 company-wide.

The loss resulted from trading in Standard & Poor’s 500, DAX and EuroStoxx index futures over the past three months, UBS said on Sept. 18. Kweku Adoboli, 31, a trader on the Delta One desk in London, was charged with fraud and false accounting and remains in custody. He has yet to enter a plea.

Guido Hoymann, a Frankfurt-based analyst at Bankhaus Metzler who recommends investors sell UBS stock, said market conditions will probably limit departures and the bank will fight to keep top performers.

“UBS staff may be more amenable to a move but they would be unwise to do anything rash,” said Jonathan Evans, chairman of executive-search firm Sammons Associates in London. “It is still one of the best-regarded investment banks and will do whatever it can to pay staff. I expect people will wait to see what the future of the firm looks like and what bonuses are offered.”

To contact the reporter on this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net Nicholas Comfort at ncomfort1@bloomberg.net Giles Broom in Geneva at gbroom@bloomberg.net

To contact the editor responsible for this story: Frank Connelly in Paris at fconnelly@bloomberg.net

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