UBS slashes jobs in US subprime wake

UBS is now cutting thousands of jobs Keystone

Switzerland's largest bank, UBS, says it plans to cut 5,500 jobs in the group by the middle of next year, about 1,500 in its home market alone.

This content was published on May 6, 2008 - 09:28

The bank, hardest hit in Europe by the United States subprime mortgage crisis, said conditions in the financial markets and the global economy remained difficult. It reported a first-quarter loss of SFr11.535 billion ($10.97 billion).

This was slightly better than the bank's forecast of a SFr12 billion loss on April 1.

In a statement on Tuesday the bank said it had recorded net inflows of SFr5.6 billion in its wealth management business.

Analysts polled by Reuters had expected inflows of SFr9 billion and a net loss of SFr11.9 billion.

The bank also said it had a preliminary deal with US asset manager Blackrock to sell a $15 billion portfolio of subprime mortgages.

"We see clearly that there are sophisticated investors coming into this market, and this itself we view as strong support," chief executive Marcel Rohner said in a conference call with journalists.

UBS said it expected financial industry conditions to remain difficult, resulting in the bank having to "manage costs, resources and capacity very efficiently".

But it said it was able to continue its restructuring plan without needing to raise more capital beyond existing measures that total about SFr39 billion.

"The same is true for UBS as for the entire sector: The worst is likely over," commented analysts at private bank Wegelin.

"However, there is little momentum for the future. Even if the job cuts are able to lower costs, the current outlook is anything but rosy and is vague to the lack of any guidance."

Redundancies

UBS said that the investment bank expected to employ about 19,000 people at the end of this year.

This required the company to reduce staff by up to 2,600, of which the large majority would be redundancies, mainly in Britain and the US.

In the other business groups, staff numbers would be reduced mainly through natural attrition and internal redeployment, although it would not be possible to avoid redundancies entirely.

About 1,500 job cuts are to be made in Switzerland, where normally between 2,500 and 3,000 people leave the group per year.

A staff association in Zurich harshly criticised the cuts, saying that employees once again were paying for the mistakes of management.

The bank gave a number of reasons for its poor first-quarter performance – losses of around $19 billion as a result of the US mortgages situation, lower capital markets activity, sharply reduced mergers and acquisitions, as well as falling securities prices.

It also cited the weakening of the dollar and the British pound.

Risk inventory

UBS said it had "substantially reduced" its risk inventory since the third quarter of 2007. Its positions related to US subprime residential mortgages had decreased by about 60 per cent.

"We can see tangible effects as a result of our initial responses to the losses," Rohner commented.

"While our exposure is still subject to swings in market conditions, we see market demand for these securities returning in certain areas and at the current level of valuations. Risk measurement systems have also undergone corrections."

swissinfo with agencies

UBS woes

UBS endured a tough 2007, starting with the collapse of its hedge fund Dillon Read Capital management. Two months after that, in July, chief executive Peter Wuffli abruptly departed without clear explanation.

In October of last year, UBS said it would cut 1,500 jobs in its investment banking arm, including that of its head Huw Jenkins. UBS chief financial officer, Clive Standish, left at the same time.

Later that month the bank announced it was writing off SFr4.2 billion on subprime losses and SFr726 million pre-tax loss for the third quarter – the first quarterly loss in nine years.

In December UBS said another $10 billion would be written off as the US subprime crisis deepened. It also announced plans for a SFr13 billion funding plan from Singapore and Middle East investors, which was passed by shareholders in February.

A further $4 billion was written off in January, bringing the total losses to around SFr20 billion. Another SFr19 billion was written off in April, accompanied by the news of Marcel Ospel's resignation as chairman.

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Job cuts

The latest 5,500 staff cuts at UBS come on top of 1,500 already completed and represent a reduction of 18% of the total group headcount since mid-2007.

The 5,500 job losses represent about 7% of the current staff. Chief Financial Officer Marco Suter told Reuters that UBS was unlikely to cut jobs again in the investment bank on the scale of those just announced.

But he added that the bank had to continually adjust to market conditions.

"In the investment bank, that's just the name of the game: hire and fire," Suter said.

UBS at present employs 83,839 people worldwide.

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