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By Katharina Bart
ZURICH | Mon Oct 29, 2012
7:03pm
[h=1]UBS
set to exit fixed income, fire 10,000 bankers[/h]
EDT
(Reuters)
- UBS is expected to reveal plans on Tuesday to wind down its fixed income business and fire 10,000 bankers, with shareholders
cheering one of the biggest bonfires of finance jobs since the implosion of Lehman Brothers in
2008.
The
move will focus Zurich-based UBS (UBSN.VX) around its private bank and a smaller investment bank, ditching much of the trading business that saw it lose $50 billion in the financial
crisis and one rogue trader lose $2.3 billion last year.
Chief
Executive Sergio Ermotti is expected to announce plans for a slimmer, less risky
investment bank focused on equities, foreign exchange trading and giving
corporate advice.
Investors
are keen for details on how the Swiss bank will wind down the fixed income unit
without incurring big losses. Employees complain they have been in a state of
limbo after months of rumors of cuts.
"It's
becoming like torture, especially for those that don't think they will be
compatible with the new Orcel team," said one employee, referring to Andrea
Orcel, a close ally of Ermotti from Bank of America (BAC.N) who arrived in July and is expected to run
the investment banking unit's remaining
businesses.
Bankers
were already anxiously awaiting news of an initial 400 job cuts set to hit this
week, though that will likely be just the beginning of a cycle of layoffs that
will hit those in fixed income trading the worst.
A
smaller investment bank would leave UBS to focus on its private bank, which
looks after the affairs of rich people. It is the second-largest operation of
its kind in the world after Bank of America with $1.554 trillion in assets
according to a compilation by Scorpio Partnership.
UBS
was one of the banks hardest hit by the financial crisis when its
fixed-income unit racked up more than $50 billion in losses after gorging on
subprime securities, forcing it to seek a bailout from the Swiss
government.
After
settling a damaging U.S. tax probe in 2009, the bank had just started to rebuild
client confidence when the $2.3 billion trading scandal surfaced in September
last year.
Kweku
Adoboli, who worked on the bank's London-based exchange-traded equities funds
desk, has pleaded not guilty to two counts of fraud and four of false accounting
over the costly bets. His trial is under way in London.
The
overhaul expected to be announced on Tuesday comes against the backdrop of far
tougher regulation on riskier securities trading activities, and would represent
a return to advisory roots stemming from UBS's purchase of Warburg, a British
merchant bank, in 1995.
UBS
stock rose sharply on Monday, with investors cheered by the prospect of the bank
paying out to shareholders the capital freed up as a result of the
overhaul.
However,
there is still plenty of uncertainty surrounding the plans to wind down the
fixed-income arm, which includes activities such as trading in commodities and credit. Analysts say there are few
precedents of a bank winding down such a big operation, making it hard to gauge
the cost the move.
"We
will need to see whether they can run down the assets and the cost base without
disruptive losses," Barclays analysts Jeremy Sigee and Kiri Vijayarajah wrote in
a note to investors.
The
expected UBS cuts will add to the tens of thousands of jobs the financial sector
has shed globally since the financial crisis of 2008. UBS's investment bank and
fixed-income business in particular was the object of public anger in
Switzerland following the 2008 government bailout.
UBS's
private bank also faces challenges, with profits falling as Swiss banking
secrecy is weakened by repeated demands from foreign governments determined to
recoup tax on undeclared funds held in offshore accounts.
UBS's
rival Credit Suisse (CSGN.VX) said last week it was also making more cost
cuts as part of efforts to bolster its profits and capital position.
The
UBS overhaul is expected to be announced alongside what analysts forecast to be
a 55 percent drop in third-quarter net profit.
(Reporting
By Katharina Bart. Additional reporting by Sarah White and Sophie Sassard in
London.)
