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UBS Group (UBS) Mulls to Restructure Investment Bank Unit

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Per a Bloomberg article, UBS Group UBS is planning to restructure its investment banking unit in order to boost performance. The move is likely to result in hundreds of job cuts, according to people familiar with the matter.  

The company aims to improve connection between dealmakers and the wealth management unit. Also, it is planning to benefit from its strategy of focusing on industries, which are attractive to its richest clients. Moreover, the unit will make efforts to increase business with private equity firms, pensions and sovereign wealth funds.

The unit’s co-heads, Piero Novelli and Rob Karofsky, are consistently making efforts to bolster the business, and keeping it from reporting volatile numbers. Also, they recently set up a new unit — Private Capital Markets — to target a greater share of private transactions.

For second-quarter 2019, UBS Group’s Investment Bankunit posted adjusted operating profit of $440 million, down 23% from the prior-year quarter, on account of lower equities revenues and fall in foreign exchange, rates and credit. However, higher advisory revenues, backed by a strong corporate deals pipeline, acted as cushion.

However, overall the performance of investment bankers is likely to be soft in the quarters ahead as political uncertainties and geopolitical tensions continue to weigh on the economy. Further, drop in U.S. interest rates is a headwind for the interest income of banks. 

Another company to have unfolded massive job cut plan after suffering from unfavorable market condition is Deutsche Bank (DB - Free Report) . In July 2019, it announced plans to reduce headcount by about 18,000 employees by 2022-end to save costs.

Our Take

Though UBS Group’s financials continue to be affected by involvement in several lawsuits, regulatory probes and low interest rates in domestic economy, its strategic alliance to improve customer base and efforts to tap into opportunistic growth areas bode well.

The stock has lost 12.2% so far this year compared with slight decline of the industry it belongs to.

Currently, UBS Group carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

A couple of top-ranked stocks in the same space are BanColombia S.A. CIB and Royal Bank of Canada RY.

Earnings estimates for 2019 for Zacks #1 Ranked BanColombia’s have moved up 2.7% in the past 30 days. Its share price has risen 11% in the past six months.

The Zacks Consensus Estimate for the current year for Royal Bank of Canada, carrying a Zacks Rank #2, has been revised nearly 1% upward in the past 30 days. The company’s share price has jumped 1.9% in the past six months.

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