) is likely to make 10,000 job cuts, according to a report in the
. 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.
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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
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
) 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.
Credit Suisse Group AG
) have opted to make layoffs to address such issues. A number of
U.S. banks like,
Bank of America Corp.
) 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
UBS currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating.