UBS Said to Plan 10,000 Job Cuts, Investment Bank Shrinks
Many of the reductions will come in the trading businesses overseen by investment-bank co-head Carsten Kengeter and probably will occur over several quarters, said the person, who requested anonymity because the plans haven’t been publicly announced. An announcement may come when UBS reports third-quarter earnings on Oct. 30, the person said.
Chief Executive Officer Sergio Ermotti, 52, is overhauling the bank as Swiss regulators pressure UBS and Credit Suisse Group AG to boost capital and scale back trading and investment-banking operations. Like rival securities firms, UBS has been struggling to boost profitability as client activity and trading remain sluggish.
“It was a loser’s game for them,” said Terry Connelly, former dean of the Ageno School of Business at Golden Gate University in San Francisco and an ex-managing director at Salomon Brothers Inc. “It wasn’t their fault, they simply tried climbing the wrong mountain.” High fixed costs and weak demand have made it harder to be profitable, and the industry will have to shrink more, he said.
Ermotti told his staff in a memo this month he’ll do whatever it takes “to tackle the current challenging market environment and paradigm shift” in banking and will continue “remodeling” UBS. He said in July that the market environment has completely changed since the firm announced reorganization plans for the securities unit in November.
“UBS is a microcosm for the industry,” Mark Williams, a lecturer at Boston University’s School of Management, said in an interview. “The banking business model is changing and we’ve got to look at cost structure, we’ve got to look at compensation, and we’ve got to readjust.”
The bank had about 63,250 employees as of June 30, according to its most recent financial report, which means the staff cut could equal 16 percent. UBS already announced it is reducing risk-weighted assets at the investment bank by more than half from September 2011 levels, mostly in fixed income.
The plan will lead to a further reduction of as much as 100 billion euros ($129 billion) of risk-weighted assets, the Financial Times reported today, without saying how it calculated the figure.
The staff cuts were reported earlier by the Financial Times. The eliminations will lead to changes in senior management and reduce costs in the bank’s support functions including information technology, the FT said.
“Investors want UBS to reveal the value of the asset and wealth management businesses, which will make 26 percent returns on our 2013 estimates and downsize materially the investment bank which struggles to make single-digit returns,” said Huw van Steenis, a London-based analyst at Morgan Stanley.
Serge Steiner, a spokesman for the bank, declined to comment. Since taking office last year, Ermotti has been working to cut production costs across all of the bank’s businesses.
The firm also has weighed a shakeup at the top of its investment bank that would give a reduced role to Kengeter, 45, and more responsibilities to his 49-year-old co-head, Andrea Orcel, three people with knowledge of the matter said.
The firm’s boards were meeting in New York to consider a reorganization of the unit that will include cuts centered on the fixed-income operations for which Kengeter has been responsible since 2008, the people said.
“People will have a while on the beach,” he said. “Their business has been commoditized to the point where their brains don’t count as much. A lot of investment bankers will have to find another way to make money.”