UBS AG (UBS - Free Report) is likely to make 10,000 job cuts, according to a report in the Financial Times. The layoffs are part of the company’s efforts to reorganize its business and split its investment bank. The details are expected to come up this week.
According to the report, UBS will pool a significant part of its fixed income trading business into a non-core unit, which would be led by Carsten Kengeter, a co-head of the investment bank. In due course, this unit would be wound down. As a result, the investment bank unit would shrink and be comprised of equities trading, foreign exchange and advisory activities.
The layoffs represent around one-sixth of the company’s total staff strength as of June 2012. It is also over and above the 3,500 job cuts program which was announced last year and is currently underway. The layoffs will take place in a phased manner.
The layoffs, designed by Chief Executive Sergio Ermotti, would lead to a decrease in risk-weighted assets and lessen the complexity of its investment banking division. Thousands of back office operations will be reduced and therefore the costs associated with such support activities will be lessened.
With UBS facing crises since the financial meltdown, besides incurring trading losses and outrage worth billions of dollars, the overhauling measures are aimed at developing its core businesses and downsizing its troubled units. The company has been trimming its investment bank unit over the past year and aims to refocus on building its market-leading wealth management and asset management business.
UBS, which is scheduled to report its earnings tomorrow, is not the only firm that is overhauling its business and making job cuts. Amidst the stressed operating environment, lower returns and stringent capital norms, other banks are rightsizing their business to meet such challenges.
In the recent months, Deutsche Bank AG (DB - Free Report) also announced its plans of revamping its business, which involves change in compensation practices, job cuts as well as asset sales. Moreover, Royal Bank of Scotland Group Plc. (RBS - Free Report) and Credit Suisse Group AG (CS - Free Report) have opted to make layoffs to address such issues. A number of U.S. banks like, Citigroup Inc. (C - Free Report) and Bank of America Corp. (BAC - Free Report) also chose business restructuring post the financial crisis.
Given the stressed operating environment, we believe any significant 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 bolster its competitive edge.
UBS currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.