UBS May Cut 8,000 Jobs After SF12 Billion First-Quarter Loss
By Elena Logutenkova
May 5 (Bloomberg) -- UBS AG may cut as many as 8,000 jobs as it grapples with the biggest credit writedowns of any European bank and a 12 billion-franc ($11.4 billion) first-quarter loss.
Switzerland's biggest bank, which had a 3 billion-franc profit a year earlier, is set to spell out plans for layoffs when it reports detailed results tomorrow. The company will probably say it's eliminating between 2,500 and 3,000 jobs in its investment bank, more than 10 percent of the division, two people familiar with the matter said May 2.
``UBS is scaling down investment banking,'' including reducing trading bets and giving up off-balance sheet units, said Frankfurt-based Landsbanki Kepler analyst Dirk Becker, who advises clients to ``reduce'' holdings of UBS. It is ``realistic'' to estimate that the company will fire one tenth of its 83,000 employees overall, he said.
Writedowns at the Zurich-based bank after the U.S. subprime mortgage meltdown have swelled to $38 billion over the past three quarters, a result of building a debt securities business at the peak of the market. Chairman Marcel Ospel, who replaced half of the executive board since losses began in 2007, stepped down last month. UBS already cut 1,500 jobs late last year.
UBS lost 51 percent in Zurich trading in 12 months through May 2, making it the fifth-worst performer in the Bloomberg Europe Banks and Financial Services Index of 59 stocks.
It got shareholder approval last month to raise 15 billion francs through a rights offer after receiving 13 billion francs from investors in Singapore and the Middle East in March.
Winning Back Trust
``They've got to do something to win back the trust of shareholders,'' said Peter Thorne, an analyst at Helvea in London with an ``accumulate'' recommendation on the shares. ``I wouldn't be surprised if it's more'' than 8,000 layoffs, he said.
New York-based spokesman Doug Morris declined to comment.
The world's biggest financial companies have announced more than $319 billion of writedowns and loan losses, with UBS in second place behind New York-based Citigroup Inc., which has written down $41 billion. Banks and securities firms have cut about 48,000 jobs in the past 10 months, including 15,200 positions at Citigroup and 5,220 at Merrill Lynch & Co.
Credit Suisse Group, Switzerland's second-biggest bank, and Deutsche Bank AG, Germany's biggest, reported quarterly losses for the first time in five years for the three months ended in March. Credit Suisse had a 2.15 billion-franc loss after 5.3 billion francs in writedowns, while Deutsche Bank lost 131 million euros ($204 million) after a 2.7 billion-euro markdown.
`High Price'
UBS Chief Executive Officer Marcel Rohner, 43, and newly elected Chairman Peter Kurer, 58, told shareholders at the annual meeting last month that they plan to slim down the securities unit while focusing on maintaining the ``core'' wealth management franchise after Swiss clients pulled money in the first quarter.
Investment bank head Jerker Johansson, 51, a former Morgan Stanley banker who started in mid-March, inherited a division that contributed about 40 percent of UBS's profit in 2006 before the credit-market freeze.
``UBS was among the last to participate in debt and they've had to pay a rather high price,'' said Jan Leroy, a Brussels- based fund manager at Petercam Asset Management with more than $29 billion in holdings. ``They should now focus on preventing collateral damage to their asset management and private banking business.''
Investors, including Luqman Arnold, a former UBS president whose London-based investment group holds more than 1.1 percent of the bank's shares, are demanding a split of the investment bank from other units.
Integrated Model
While UBS has maintained a commitment to its so-called integrated bank model, Kurer told shareholders that he will examine its risks and rewards.
The investment bank ``will no longer aim to offer everything to everyone,'' Rohner said at the meeting. The unit will have to earn capital for future growth and ``surpluses from the wealth management business will be returned to shareholders through dividends or share buybacks,'' he said.
UBS was among the first stung by the subprime contagion when its Dillon Read Capital Management LP hedge fund, run by former investment banking chief John Costas, lost 150 million francs in the first quarter of last year. By May that year, UBS decided to close it.
Losses at the hedge fund, which accounted for 16 percent of about $19 billion in writedowns last year, are dwarfed by markdowns that the bank had to make on collateralized debt obligations that its CDO desk accumulated instead of selling the bonds, UBS's report to shareholders released last month shows. The CDO desk was responsible for two-thirds of 2007's writedowns.
The report, sent to the Swiss Federal Banking Commission, says top management was too slow to realize the severity of UBS's subprime problem and didn't distinguish in compensation between ``return generated by skill'' and ``returns made from exploiting UBS's comparatively low cost of funding.''
``UBS will scale back investment banking and hire in asset management,'' said Florian Esterer, a senior portfolio manager at Swisscanto Asset Management, which oversees $63 billion in Zurich. The investment banking unit ``should consider developing a niche strategy,'' he said.
To contact the reporters on this story: Elena Logutenkova in Zurich at [email protected];
