Bleeding, UBS to shed 5,500 jobs
Posted on Wednesday, May 7, 2008
URL: http://www.nwanews.com/adg/Business/225013/
Swiss bank UBS AG, battered by $ 17. 3 billion of first-quarter losses at its investment-banking unit, plans to cut 5, 500 jobs and said clients withdrew a net $ 12. 2 billion from its asset- and wealth-management divisions.
The job reductions, which amount to about 7 percent of the work force, will include as many as 2, 600 positions at the securities division, the company reported in a statement Tuesday. The bank also said it plans to exit the municipal-bond business and sell $ 15 billion in distressed assets to a newly created fund managed by BlackRock Inc. UBS had a net loss of $ 10. 9 billion in the first quarter.
UBS shares fell 4. 5 percent in Swiss trading, the most in four weeks, after clients withdrew more assets than they added for the first time in almost eight years. Chief Executive Officer Marcel Rohner told analysts he expects “tough business conditions,” which already caused $ 38 billion of markdowns at Switzerland’s biggest bank, to continue.
“The bank’s reputation is tarnished,” said Dieter Winet, a senior portfolio manager at Swisscanto Asset Management in Zurich. “They pointed out some problems in private banking, which is their last jewel. The other two divisions have even bigger problems, as one nearly drove UBS to bankruptcy.”
Pretax profit at the wealthmanagement and businessbanking unit of Switzerland’s largest bank fell 1. 7 percent to $ 2. 04 billion, while profit from asset management slumped 17 percent to $ 313. 1 billion. The $ 17. 3 billion loss at the securities unit compares with a profit of $ 1. 46 billion a year ago.
The job cuts are part of the 65, 000 reductions announced by the world’s biggest banks and securities firms in the past year, as write-downs and losses from the U. S. subprime crisis swelled to $ 319 billion.
The measures will save about $ 2. 85 billion a year, UBS said. The bank’s first-quarter loss after write-downs of $ 19 billion was in line with its estimate on April 1. It had a $ 2. 72 billion profit a year earlier.
UBS shares fell $ 1. 57 to $ 33. 41 in Zurich, valuing it at about $ 72. 77 billion. The company lost more than half its value in the past 12 months, making it the fifth-worst performer in the Bloomberg Europe Banks and Financial Services Index of 59 stocks. Deutsche Bank AG cut UBS to “hold” on Tuesday, with a note saying “good news already in the price.”
Rohner, 43, told shareholders last month he plans to slim down the securities unit while focusing on the “core” wealth-management franchise. The private bank had net new money inflows of $ 5. 31 billion in the first quarter, while Swiss business banking and global asset management had $ 17. 46 billion in outflows.
Outflows accelerated toward the end of the first quarter and UBS remains “cautious” with regards to outlook for net new money, Chief Financial Officer Marco Suter said in an interview. He declined to say if clients added or pulled money in April.
UBS’ asset-management unit has had four consecutive quarters of outflows as its funds underperformed comparable indexes. On a composite basis, the bank’s global equity and global bond funds lagged behind their benchmarks over the past one, three and five years, UBS said in its quarterly report.
“We expect this difficult environment to remain and be characterized by a continuing unfavorable global economic climate, deleveraging by institutional and private investors, slower wealth creation and lower trading and capital market activity,” Rohner wrote Tuesday. “The impact will affect all of our businesses and we are required to manage costs, resources and capacity very actively.”
The bank already eliminated 1, 500 jobs in the investment bank at the end of last year. It brought in Jerker Johansson, 51, from Morgan Stanley as new head of the unit in mid-March and said last month it will put assets related to U. S. residential real estate into a separate unit that may be spun off later.
UBS plans to sell subprime and Alt-A mortgage assets to Black-Rock by the end of June. Outside investors are committing $ 3. 75 billion to the fund and will carry first losses, said Suter, 49. “These are highly professional investors,” he said. “It just shows you that they see profit potential.”
Most job cuts at the investment bank will be in the U. S. and London and at all levels, according to UBS. About 26 percent of jobs will be reduced in fixed-income, and 9 percent in investment banking and equities, Johansson said on a conference call, adding that real estate and securitization businesses will also see some of the largest head-count reductions. UBS is in talks to sell the municipal-bond business, he said, declining to name potential buyers.
The securities unit, which at the end of the quarter employed 21, 230 people, is targeting pretax profit of about $ 3. 79 billion, down 28 percent from the level of 2006.
“In the coming quarters and potentially even years, the securities industry will have to live with lower transactions and lower commissions,” said Paul Vrouwes, a fund manager at ING Investment Management who helps oversee about $ 23 billion, including UBS shares.