January 23, 2009 / 7:26 AM / 11 years ago

Fresh UBS job cuts suggest more to come for sector

ZURICH/LONDON (Reuters) - A new round of job cuts at Swiss bank UBS AG two months after an earlier cull shows thousands more bankers may be on their way out as investment banks struggle with a crisis critics say they helped cause.

Banks have announced almost 300,000 job cuts since the start of the credit crunch in 2007.

But analysts expect more pain to come and UBS’ UBSN.VX (UBS.N) competitors such as Deutsche Bank (DBKGn.DE) and Credit Suisse CSGN.VX to follow suit as markets continue to deteriorate and governments are seen preparing a second round of bail-outs to prop up banks.

“Investment banks will continue to resize to try and get back to profitability within the foreseeable future,” said Matthew Clark, a bank analyst, at Keefe, Bruyette & Woods.

“They will aggressively address their cost bases.”

UBS, which was brought on the verge of collapse by risky bets on the U.S. subprime market, announced on October 4 it was cutting 2,000 jobs at its investment bank as part of a major restructuring that would see it exiting certain business lines.

The bank is already planning to cut more investment banking jobs, an internal memo obtained by Reuters showed, in a bid to slash costs and re-focus on its core wealth management division as a deteriorating business environment prompts a second round of state interventions to prop up major banks.

“The world is getting worse and worse. This is a reaction to a changing environment and a sign UBS is getting more and more realistic, said Peter Thorne, a bank analyst at Helvea.

UBS, which wrote down $49 billion (35.65 billion pounds) in the crisis and had to be rescued by the state, has announced a total of 6,000 layoffs at its investment bank since October 2007. These would cut UBS’ investment bank by a fourth to around 17,000 employees, not including the expected new round of job cuts.

Switzerland’s largest bank would not disclose how many new job cuts are in the pipeline.

In the past week, JPMorgan Chase (JPM.N), Citigroup (C.N) and Bank of America (BAC.N) have announced bigger than expected losses and write-downs. In Europe, investors got dismal updates from Royal Bank of Scotland RBS (RBS.L) and Deutsche Bank.

Analysts at JP Morgan said they expect UBS to reduce its investment banking headcount by another 1,100 by the end of 2010, with Deutsche Bank cutting 4,000 investment bankers and Credit Suisse, which slashed in December 5,300 jobs, about 200.

“We expect staff levels in 2009 to be adjusted to 2005 levels, with revenues in 2010 to match 2002-03 levels,” they said.

CUT TO THE BONE

UBS said in October it was exiting all commodities business apart from precious metals and indexes and has since agreed to sell parts of the business to JP Morgan and Barclays (BARC.L).

In its memo, it said it was now making “radical” changes to its fixed income division, a once lucrative business that analysts say the bank had been building up over the last years.

Analysts say the division is much to blame for using cheap wealth management flows to heavily invest in the structured credit products that led to the near collapse of UBS.

The memo said UBS, which has also axed municipal bonds and proprietary trading, will also exit the business of creating and trading real estate securities and exotic structured debt.

“UBS has no choice but to cut jobs. The market will remain difficult for another 12 months, so they cannot sit still,” Dirk Becker at Kepler Equities. “But they may regret it when the capital markets picks up again,” he added.

Swiss newspaper Sonntag has said UBS could cut as much as 5,000, representing a further 6 percent downsize of its 80,000 global staff. UBS declined to comment on the report but said it would give a job update as it reports earnings on February 10, where Swiss media say it could report a 20 billion Swiss franc loss.

Christian Stark, an analyst at Credit Agricole Cheuvreux, said in a note this week capacity in investment banking still seems high for UBS relative to revenue expectations for 2009.

“In 2004 UBS operated with 17,000 employees but generated 16 billion Swiss franc in revenues, whereas we expect 2009 revenues to be in the range of 13 billion franc,” he said.

Writing by Lisa Jucca; Editing by Mike Nesbit

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