UBS axes 3,500 jobs in cost-cutting push

ZURICH Tue Aug 23, 2011 3:35pm EDT

A cobweb is seen in front of the logo of Swiss bank UBS in Zurich, August 23, 2011. REUTERS/Arnd Wiegmann

A cobweb is seen in front of the logo of Swiss bank UBS in Zurich, August 23, 2011.

Credit: Reuters/Arnd Wiegmann

ZURICH (Reuters) - Switzerland's biggest bank UBS AG (UBSN.VX) (UBS.N) is to axe 3,500 jobs to shave 2 billion Swiss francs ($2.5 billion) off annual costs as it joins rival investment banks in reversing the post-crisis hiring binge and preparing for a tough few years.

UBS said almost half the cuts would be in investment banking. It had already said it would cut jobs when it posted weak second quarter profits last month as its underperforming fixed income business weighed.

Like rival Credit Suisse Group AG (CSGN.VX), UBS has been grappling with rising regulatory costs and a red-hot Swiss franc, which are eating into profits.

"The cost cutting is an admission of defeat. UBS overhired after its near-collapse in early 2009, but was unable to win back market share," said Kepler Capital Markets analyst Dirk Becker.

"With more difficult markets, the economics of its investment bank became so uncompelling that the group now has to retreat," Becker said.

At 5:52 a.m. EDT UBS shares were up 2.4 percent, outperforming a 1.1 percent rise in the wider European banking sector index.

"The measures announced today are designed to improve operating efficiency. UBS will continue to be vigilant in managing its cost base while remaining committed to investing in growth areas," UBS said.

Banks are slimming down as weak investment trading this year looks set to continue, leaving many carrying high costs after hiring aggressively in 2009 and early 2010 when trading income surged following the financial crisis.

"Since UBS announced their 2 billion franc cost saving initiative, the economic environment has deteriorated even further, making these plans seem inadequate," Helvea analyst Peter Thorne said.

"Hopefully, UBS will be more active in lowering staff compensation levels than they have been so far," Thorne said.

FICC IN A FIX

Fixed income, currencies and commodities (FICC), which accounts for about half of investment bank industry revenue, has been hit particularly hard as bond trading has slumped.

Investors will focus on UBS's investor day in November for more insight into its plans for its fixed income unit, which it has put under review.

Tougher regulation has added pressure to shrink balance sheets and exit some business areas. That has put more scrutiny on costs, which are seen as particularly high at Switzerland's top two banks.

"Especially under new regulations, the only way to improve return on equity is to cut costs," said Shailesh Raikundlia, analyst at MF Global in London.

UBS, which had to be rescued by the state in 2008 after massive losses on toxic assets, slashed staff to around 64,000 from 78,000 before the financial crisis, but it grew again in the last year to over 65,700.

Around 45 percent of the cuts will come from UBS's investment bank, 35 percent from wealth management & Swiss bank, 10 percent from global asset management and 10 percent from wealth management Americas.

"While total restructuring charges are in-line, we are somewhat surprised about the high part wealth management & Swiss bank have to shoulder: around 165 million francs and 1,225 headcount," Sarasin analyst Rainer Skierka said.

Wealth management is typically a far less capital intensive business than investment banking, with more predictable revenues and more stable margins. Client advisers at the bank's wealth management unit will not be affected by the cuts.

A spokeswoman for UBS declined to give any further breakdown of where the job cuts would come, saying all areas would be affected and that the focus would be on middle and back office staff.

Investment banks worldwide have been hit by slow trading due to the debt problems in the euro zone and United States, as well as regulations aimed at forcing banks to hold more capital to protect them from future shocks after the 2008 global financial crisis.

Credit Suisse has said it would cut around 2,000 jobs after weak trading activity and the strong franc hit its second-quarter results, and thousands of jobs are going at HSBC (HSBA.L), Barclays (BARC.L), Goldman Sachs (GS.N) and elsewhere.

Big hikes in fixed salaries since the financial crisis to compensate for tougher bonus rules has left banks with an inflexible cost base that they now need to shrink after a bumpy year so far.

At UBS and Credit Suisse, fixed costs could rise to 65 percent and 82 percent of total compensation, respectively, in their investment banks this year from 55 percent and 66 percent in 2009, according to a recent JPMorgan analysis.

UBS expects to book a restructuring charge of some 550 million francs, and around 450 million francs of this will be booked in the second half of the year, with the majority recognized in the third quarter.

($1 = 0.786 Swiss Francs)

(Additional reporting by Catherine Bosley, Rupert Pretterklieber, Albert Schmieder and Martin De S'Pinto in Zurich and Sarah White in London; Editing by David Cowell and Hans-Juergen Peters)

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Comments (6)
linushuber wrote:
SCARE 20.12.2012
(Stop Corruption and Repression Effective 20.12.2012)
Banks were given a very important privilege to create more in the form of extending credit. This function requires diligence and careful consideration in regard to individual credit risks as well as to overall credit levels in the system. The financial crisis revealed that the banks were operating at too high a leverage and with too much risk. They were used to be saved by the Central Banks and certain that in times of difficulties the Central Banks were there to save them. They were like trained dogs and their master Greenspan or Bernanke would always be there to rescue them when unforeseen difficulties arose.
That may be true but that does not absolve them from their obligation to monitor overall debt levels in the system as well as being diligent in evaluating the debtors ability to not only service a debt but to be able to repay it over time. The banks clearly failed in this function that is the core function of banking but focused mainly on their compensation packages. The way these bankers enriched themselves in the process of driving the financial system into a wall was appalling and the average income earner was never able to comprehend their schemes but preferred to simply ignore them. Of course, the bankers explained their outrages income levels with free market principles of supply and demand, where the best simply could be hired with those kinds of benefits only. In hindsight those superior managers seem to have missed their mark considerably. The most interesting aspect of all of this is the fact that, after we have been more than 3 years in this financial crisis, the bankers continue to loot the system as if nothing ever happened.
True to form the Central Banks “saved” the financial system by saving those great financial institutions without whom the system would have collapsed, as was argued. Hardly were we out of the danger of collapse, the banks immediately went back to their old ways and were certain that this was a problem that would occur just once in a lifetime and now all was clear again. The real problem, however, had not been addressed but had simply been muddied.
In actuality, the losses produced of extending unsustainable levels of credit by the banks have been transferred to the public. Different ways were chosen to achieve this task in the form of free money for the banks, injection of government funds into some institutions, increase of basic money supply and so on.
The threat of system collapse would have been labelled blackmail if it would have occurred in another setting. However the bankers were able to influence the media, the legislators and regulators in their favour with all the financial resources available to them. Nobody was made to take any responsibility and no one was taken to account.
This represents a serious violation of the spirit of the Rule of Law that is the basis of western society. It seems that now the new rule is Might is Right. This changes many parameters in the compass of the social system within the western world. No one can be sure on what level and when one will be subjected to the financial abuse of those elites. Presently, the people in charge are trying to enhance financial repression of which one form is to keep interest rates below the level of inflation which affects mainly those that lived within their means over the past many years; another clear violation of the spirit of the Rule of Law as it transfers losses from bad investments to the innocent and decent part of the population. In addition, the increased level of government debt puts in doubt all those benefits promised by governments the world over.
It is interesting how the banks were able to confuse the public that they are unable to grasp the actual situation. But considering their great financial resources, it seems not that much of a miracle to influence the media and the legislator and having politicians do their bidding. The question is what the heck can WE, THE PEOPLE do about it.
Usually, we could address such things on a political level as we are a democracy, right? But it seems that the system has been corrupted by all the money sloshing around and it is extremely difficult to find any electable person that will act against those powerful interests. In addition, it will take many years until sufficient numbers of persons with the new thinking and with integrity not to be corrupted by those lobbying efforts will be elected to office that will implement the changes needed. So, what should we do? Start a revolution?
Well, the blackmail used by the banks may be the only way to address the injustices that have occurred over the past few years. They showed us how to leverage one’s limited resources to achieve one’s goal. Therefore the following proposal to start the movement “SCARE 20.12.2012” should be seen in this context. The idea is that if by that time (20.12.2012) some serious injustices have been removed from the system, people start to withdraw their money from all financial institutions driving them into default. And it might work, because those who hesitate to support this threat may be left with no money as the banks will have to close down before all has been paid out.
Now, what demands are made if that scenario is to be avoided.
1. Bankers and past Bankers (all those working in the financial industry that earned in excess of $500k plus annually for more than 2 years during the past 15 years and this without any downside risk i.e. risk of financial losses, except the possibility of losing their job) have to be made personally accountable for their past activities and be removed from any such position that might directly or indirectly have influence on the money creation and lending aspects of the economy (this includes regulating agencies and politics) before 20.12.2012.
2. Present and past regulators have to be made personally accountable for their past activities and be removed from any such position that might directly or indirectly have influence on the money creation and lending aspects of the economy (this includes financial institutions and politics) before 20.12.2012.
3. Politicians that accept any financial support from institutions that are involved in the money creation and lending aspects of the economy will have to face a jail term of no less than 2 years without the possibility of parole.
When these 3 points are implemented before 20.12.2012, we the public will not destroy the financial system but support the way to find back to the RULE OF LAW and away from the idea of MIGHT IS RIGHT.

Aug 23, 2011 12:36pm EDT  --  Report as abuse
Intriped wrote:
Good!

Aug 23, 2011 1:02pm EDT  --  Report as abuse
FoxxDrake wrote:
@linushuber that’s too long a read.

As to the article, well if you’re a republican, I guess the answer to all this unemployment is…”the market, the market, the market.” The imaginary, fantasy, mystical, antediluvian market will provide. Else, if they don’t find work they are free to go live and die under some over-pass somewhere. FREEDOM baby, freedom.

Aug 23, 2011 4:43pm EDT  --  Report as abuse
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