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October 23, 2012 6:55 pm
UBS is planning further drastic cutbacks in its struggling investment bank as Switzerland’s largest bank by assets accelerates a retreat to its more profitable wealth management business.
The move will prompt the loss of several thousand jobs in the investment bank and in support functions across the group, people close to the situation said.
Executives of the bank were locked in a board meeting in New York on Tuesday to thrash out details of the plan.
This restructuring will be a drastic next step in a strategy unveiled almost a year ago by chief executive Sergio Ermotti to give UBS’s often troubled investment bank a support role for the bank’s market-leading wealth management.
The bank had moved earlier than rivals by announcing 2,000 job cuts in the investment bank late last year after a $2.3bn unauthorised trading loss. Back then, it targeted to bring down the unit’s staff levels to 16,000 within five years.
At the end of June, its investment bank employed 16,432.
The unit had brought the Swiss lender to its knees during the financial crisis, forcing UBS to retrench faster and earlier from the area than most of its rivals. Its investment bank had yet another troublesome quarter between April and June after the botched IPO of Facebook dragged it into a loss.
People close to the situation said there were still various options being discussed at the board meeting and that the cuts might not be finalised in time for the third quarter results next week.
But they added that the strategic planks for the cutbacks had already been drawn out. In the investment bank, UBS is eying to exit further capital-intensive areas in fixed income trading such as long-end flow rates and global correlation trades.
Under new rules, regulators force banks to hold much more capital against such businesses, making them much less profitable than they used to be.
Mr Ermotti is also looking to centralise further areas in information technology and other back-office functions, an endeavour that has been met with internal opposition from some divisional heads.
UBS’s investment bank is trailing far behind the 26 per cent return on allocated equity that the bank is achieving in core areas such as wealth and asset management, despite consuming almost half of the bank’s equity capital, estimates by Morgan Stanley show.
“Investors are keen for UBS to shrink capital from the low returning investment bank to reveal the value of wealth management franchise,” Huw van Steenis, analyst at Morgan Stanley, said.
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