UBS AG (UBS - Analyst Report) is likely to cut 2,000–3,000 jobs in addition to the 10,000 layoffs announced in October 2012, according to a Bloomberg report. The job cuts are anticipated to occur by the end of this year.
The layoffs are part of the company’s efforts to reorganize its business. Earlier, in October last year, the Zurich-based bank planned to return to its private banking roots as tough capital regulations made it difficult for the company to incur profits from trading.
With UBS facing crises since the financial meltdown, besides incurring trading losses and outrage worth billions of dollars, the overhauling measures were aimed at developing its core businesses and downsizing the troubled segments. The layoffs, which were designed by Chief Executive Sergio Ermotti, are aimed to decrease risk-weighted assets and lessen the complexity of the company’s investment banking division.
The company had been trimming its investment bank since 2011 and intends to refocus on building its market-leading wealth management and asset management business. Further, market sources are of the opinion that UBS may restructure again.
The newly anticipated layoffs come on the back of challenging operating environment in Europe. The sovereign debt crisis has been a matter of concern and the company has resorted to such restructuring measures to address issues like this.
Notably, UBS has been countering a faltering investment banking business with its performance registering a sharp decline over the past few quarters. The stressed environment and stricter capital norms have prompted the company to chalk out plans for rightsizing its business and trim its workforce.
Another Swiss bank sailing in the same boat is Credit Suisse Group (CS - Snapshot Report), which announced 300 job cuts in Switzerland. The layoffs are a part of Credit Suisse’s strategy to achieve CHF 4.0 billion ($4.2 billion) in cost savings by 2015. The streamlining initiatives also involved combining the bank’s retail and private banking divisions in Switzerland from January 2013, which will result in reduced headcount. The company anticipates the strategy to lead to cost savings of CHF 50 million ($53 million).
With a bleak near-term outlook of an economic recovery, banks have been progressively adopting rigorous cost-cutting initiatives to maintain a sound capital buffer in order to withstand any financial crisis.
Overall, until revenue generation revives, a worsening cost-to-income ratio will continue to force many more banks to reduce their costs through retrenchments, since they need to enhance profitability in order to boost capital ratios.
Given the stressed operating environment, we believe that any considerable improvement in the earnings of UBS would remain elusive in the upcoming quarters. However, prudent business model changes can lead to improvement in efficiency and reinforce its competitive edge.
UBS currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.