As UBS AG prepares to shrink its investment bank after a $2.3-billion loss from unauthorised trading, bankers pushed out, or looking to leave, may find few opportunities as Wall Street rivals slash jobs.
The bank had, on September 24, said its investment bank would 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, Kennedy Group. “There are some very good people at UBS and they would 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 per cent 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, Barclays Plc and Credit Suisse Group, 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. Still, UBS may not face a brain drain, he said. “This is a tough market, in which most banks are letting people go.”
Job Cuts Jump
UBS rose 36 centimes, or 3.4 per cent, to 10.99 francs by noon in Swiss trading, trimming the decline this year to 28 per cent. The stock 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, last month said it would shed 30,000 workers. Bank of America Corp, the biggest US lender by assets, had, on September 12, said it would also eliminate 30,000 jobs in the next few years under a project to remove about $5 billion in annual costs.
Oswald Gruebel, who rebuilt the investment bank following more than $50 billion of subprime-related losses during the credit crisis, stepped down as chief executive on September 24. He was replaced on an interim basis by Sergio Ermotti.
UBS would announce further changes to the investment bank to investors on November 17.
‘Doing Some Thinking’
Credit businesses that haven’t been very profitable and that would be affected the 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. “They’re likely to be downsizing in fixed income across securitisation, 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 per cent of revenue.
Bonuses Imperiled
“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.
The trading loss more than erases the 1.21 bn Swiss francs ($1.3 bn) 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 would be to hold on to 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.”
Fraud Charges
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, since he wasn’t authorised to speak publicly. The bank suffered defections earlier this year, and these included four of the 10 business heads that reported to Kengeter.
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.
