Swiss bank UBS unveiled plans on Tuesday to fire 10,000 staff and wind down its fixed income business, returning to its private banking roots as it adapts to tough capital rules that make it harder to turn a profit from trading.
Zurich-based UBS will focus on wealth management and a smaller investment bank, ditching much of the trading business that ran up $50 billion in losses in the 2008 financial crisis.
Some UBS staffers took to social networks to air their frustration after dozens of traders were stopped from entering the bank's London offices on Tuesday.
Some staff turned up to work to find their employee cards no longer worked at the turnstile and were then escorted to the human resources department, according to sources within the bank. Once at HR, they received their personal items in a bag with a letter saying they would have two weeks' paid leave, after which they were to return to pick up their redundancy package, the sources said.
Chafing at their brusque treatment by the bank, several tweeters revived "U've Been Sacked", an invented acronym for UBS, which circulated in 1998 after the bank fired hundreds of employees following the merger of the two big Swiss banks which formed today's UBS.
Chief executive Sergio Ermotti, a former Merrill Lynch and UniCredit banker, is leading the three-year overhaul aimed at saving Swiss Fr 3.4 billion (US $3.6 billion), on top of cuts of SFr 2 billion.
Former investment bank co-head Carsten Kengeter will lead the isolation and winding down of its fixed-income activities that are no longer profitable as a result of strict capital rules on riskier business introduced after the financial crisis.
The remaining investment bank — handling equities, foreign exchange trading, corporate advice, and precious metals trading — will be run by Andrea Orcel, a recent Ermotti hire from Bank of America who co-ran the unit with Kengeter until Tuesday.
"This decision has been hard, but it is necessary to create a UBS that is fit for the future," Ermotti said. "The business model we are creating will be unique in the banking industry."
The measures translate to a 15% staff cut, taking UBS's overall staff strength to 54,000, from 63,745 now, already down from a 2007 peak of 83,500 as banks have shed tens of thousands of jobs globally since the financial crisis of 2008.
Of the job cuts, 2,000 will be front-office investment banking staff, the revenue generators. Cuts among support staff will bring the layoffs to above 5,000 in the securities unit alone, Ermotti said in Zurich. About 2,500 positions will go in Switzerland, slightly more than that in the United States, and the rest in Britain, Ermotti said.
A smaller investment bank will leave UBS focused on its private bank, which looks after the affairs of the wealthy. With SFr 1.6 trillion in assets, it is the second-largest operation of its kind in the world after Bank of America.
UBS shares, which soared 7.3% on Monday in anticipation of the announcement, were up another 4.3% at SFr 13.69 by 1256 GMT in exceptionally heavy trading, their highest since July 2011, compared with a 0.7% rise for the European bank sector index.
"This is a transformational change for UBS, which investors wanted to happen for a long time," said Kepler Capital Markets analyst Dirk Becker. "After the completion of this downsizing UBS is an attractive investment case, but we still believe the execution risk must not be underestimated."
UBS, which took a government bailout in 2008 after more than $50 billion in mortgage losses, is effectively admitting the failure of an attempt to crack the fixed-income big league launched a decade ago by former chairman Marcel Ospel.
The bank suffered a $2.3 billion hit last year blamed on trader Kweku Adoboli, now on trial on charges of fraud and false accounting.
Deutsche Bank said on Tuesday it hopes to benefit from the UBS cuts as its investment bank delivered record third-quarter sales and trading revenue. Credit Suisse said last week it was also cutting more costs to boost its profits and capital but did not announce the same kind of radical restructuring as UBS.
The overhaul represents a retreat to strengths in advisory stemming from UBS's purchase of Warburg, a British merchant bank, in 1995. The bank aims to pay out more than 50% of profits to shareholders from 2015, after paying its first post-crisis dividend last year, a modest 0.10 francs a share. It has put away funds in the third quarter for an unspecified dividend this year, financial chief Tom Naratil told journalists.
The costs related to the investment banking split will also lead to a fourth-quarter and full-year loss, when taken together with charges on the bank's own debt, UBS said.
The private bank also faces challenges, with profits falling as Swiss banking secrecy is weakened as foreign governments push to recoup tax on undeclared funds in offshore accounts. However, the unit secured SFr 7.7 billion in net new money from clients in the third quarter, which represents the highest result in a third quarter — typically a slow one for the business due to the summer holidays — in five years.
Vontobel analyst Teresa Nielsen said the focus on wealth management should boost that business as UBS will be considered safer by clients and an employer of choice for their advisers. "We expect UBS to continue to show increasing strength in its wealth management as its reputation continues to improve, potentially even taking market share from Credit Suisse, Julius Baer and other competitors," she said.
UBS swung to a third-quarter net loss of SFr 2.172 billion, hit by the restructuring charges and SFr 863 million written off the value of its own debt. Analysts in a Reuters poll had forecast a net profit of SFr 457 million.
UBS is aiming to reduce risk-weighted assets to below SFr 200 billion by the end of 2017, from SFr 301 billion. Of this the investment bank will account for roughly SFr 70 billion, less than half of what it accounts for today.