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 financial crisis and is embroiled in a global LIBOR rate-fixing investigation.
Some UBS staffers took to social media 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 human resources, according to various sources within the bank.
Once at human resources, 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 collect their redundancy package, the sources said.
Chafing at their treatment, several tweeters revived "U've Been Sacked," an invented acronym for UBS which circulated in 1998 after the bank fired hundreds of staff 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 3.4 billion Swiss francs ($3.6 billion), on top of cuts of 2 billion francs already announced last year.
Investment bank co-head Carsten Kengeter leaves Ermotti's top team to lead the winding down of fixed-income activities that are no longer profitable due to stricter 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 had co-run the unit with Kengeter.
"Change is necessary for the entire banking industry," Ermotti wrote in a memo to staff. "By acting now, we are getting ahead of our competitors and reshaping our business so that it can deliver sustainable results over the long term."
FIFTEEN PERCENT STAFF CUT
The measures translate to a 15-percent staff cut, taking UBS's overall staff to 54,000, from 63,745 now. It was 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 new 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.
About 2,500 positions will go in Switzerland, slightly more than that in the United States, and the rest in Britain.
A smaller investment bank will leave UBS focused on its private bank, which looks after the affairs of the wealthy. With 1.6 trillion francs in assets, it is the second-largest operation of its kind in the world after Bank of America.
UBS shares, which soared 7.3 percent on Monday in anticipation of the announcement, were up another 5.4 percent at 13.83 francs by 1511 GMT in exceptionally heavy trading, their highest since July 2011. That compared with a 0.9 percent rise for the European banking sector index.
Investors in Switzerland, where anti-banker sentiment ran high after UBS took a government bailout in 2008 following more than $50 billion in mortgage losses, welcomed the overhaul.
"This restructuring should have happened after the rescue," retail investor Brigitta Moser-Harder, who has campaigned against hefty UBS bonuses, told Reuters. "The high cost of the investment bank has always been problematic."
Now, UBS is effectively admitting failure in its attempt to crack the fixed-income big league, launched a decade ago by former chairman Marcel Ospel. It will retreat to an advisory business rooted in the British merchant bank Warburg, which it bought in 1995.
The bank suffered a $2.3 billion hit last year blamed on London trader Kweku Adoboli. He is now on trial on charges of fraud and false accounting.
Germany's 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.
BORING BANKING IS GOOD BANKING
The bank aims to pay out more than 50 percent 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, UBS financial chief Tom Naratil told journalists.
UBS swung to a third-quarter net loss of 2.172 billion francs, hit by restructuring charges and 863 million francs written off the value of its own debt. It said the costs related to the investment banking split would also lead to a fourth-quarter and full-year loss.
While the private bank also faces challenges from eroding Swiss banking secrecy, it secured 7.7 billion francs in net new money from clients in the third quarter. That represents the highest result in a third quarter - typically a slow one for the business due to summer holidays - in five years.
"UBS is returning to its boring roots as a discreet Swiss bank," said Mark Williams, author of a study of systemic risk in the latest financial crisis entitled "Uncontrolled Risk".
"UBS is setting an important new direction for the globe's largest banks - boring banking is good banking," said Williams, who teaches finance at Boston University School of Management.
UBS is aiming to reduce risk-weighted assets to below 200 billion francs by the end of 2017, from 301 billion currently. Of this, the investment bank will account for roughly 70 billion francs, less than half of what it accounts for today.