Switzerland’s largest bank and second largest wealth manager, UBS, is going to look very different when CEO Sergio Ermotti gets through with it.
Among the actions planned by the man who took over after the bank lost $2.3 billion in unauthorized trades are job cuts totaling 10,000 and trading and investment banking operations cutbacks that include a reduction in risk-weighted assets of 100 billion Swiss francs ($107 billion).
The announcement comes on the heels of a reduction in duties for investment-bank co-head Carsten Kengeter, who, it was announced Friday, would see a reduction in responsibilities as co-head Andrea Orcel correspondingly sees his own rise. Bloomberg reported that the fixed-income segment of the unit run by the two could be cut, with Orcel getting the lion’s share of the responsibility for what remains.
The actions are seen as a return to the advisory business begun by Siegmund Warburg, founder of S.G. Warburg & Co., and acquired by Swiss Bank Corp. in 1995 to form UBS.
“UBS is going back to its roots,” Kian Abouhossein said in the report. Abouhossein, a London-based analyst at JPMorgan Chase & Co, continued, “UBS is in fact the easiest restructuring story besides Credit Suisse by closing most of fixed income, cutting back-office costs, freeing up capital and becoming even more wealth-management geared.”
Regulators have been pressuring the Swiss bank to cut back and strengthen its position in preparation for Basel III requirements; the cuts announced Monday would reduce the bank’s risk-weighted assets to below 35 billion francs and the bank overall to below 140 billion francs. UBS had previously announced those as targets for 2016.
Christopher Wheeler, a London-based analyst at Mediobanca, said in the report, “I think the market will welcome UBS facing up to the reality that it is not a market leader in fixed income.”
Mark Williams, a lecturer at Boston University’s School of Management, said in the report, “UBS is a microcosm for the industry. The banking business model is changing and we’ve got to look at cost structure, we’ve got to look at compensation, and we’ve got to readjust.”