UBS has released its masterplan for a ‘strategic acceleration from a position of strength.’
The Financial Times was right: there will be nearly 10,000 redundancies. Right now, UBS employs 64,000 people. By 2015 it expects to employ 54,000.
Speculation that the redundancies would mostly affect the investment bank was also accurate.
From 2015, UBS’s investment bank will include these businesses and these businesses alone: advisory, research, equities, FX and precious metals.
The new UBS will be organised into two client-oriented areas (corporate client solutions and investor client solutions as per the slide below). If all goes to plan, the investment bank will achieve a 15% return on equity by the start of 2013 and will have a cost income ratio of 65%-85%. The cost income ratio in the investment bank is currently 92% and the year-to-date return on equity is -11.9% (thanks largely to a CHF3bn restructuring charge levied in the past quarter).
What UBS’s new investment bank will look like (click to enlarge)
Where the redundancies will hit
In the transition to this new world, whole swathes of UBS’s fixed income business will be wiped out. The bank’s fixed income business is currently divided into a macro business (rates/FX/cash/precious metals and collateral trading) and credit sales and trading. Over the next three years, credit sales and trading will be obliterated. The implication seems to be that rates will go too.
Ironically, the credit sales and trading business achieved a 20% quarter-on-quarter increase in revenues in the three months to September and there was a ‘solid performance’ in structured credit despite VaR at the bank being at a record low. Unfortunately, it’s all too little too late.
Ermotti elucidated on where the 10,000 redundancies will happen exactly:
- 2,500 will take place in Switzerland.
- 7,500 will be divided between London and the US.
- 2,000 will come in the front office of the investment bank. UBS employs 7,500 front office investment bankers, implying that 27% of them will lose their jobs.
- The 2,500 job cuts in Switzerland will mostly affect the corporate centre, where UBS says ‘excess management layers will be removed and spans of control increased.’
- This implies that a further 5,500 jobs will go in UBS’s investment banking back office, where the bank employs 9,455 people in total. In other words, 60% of back office staff at UBS appear at risk of being made redundant.
Meanwhile, UBS is still hiring and advertising for graduates to join its FICC business
While UBS prepares for its brave new future from a position of strength, it seems to have omitted to tell university students of its plans. The bank continues to advertise for graduates and interns to join its FICC business. Headcount at the investment bank increased by 223 people in the past quarter. Many of those hires are likely to have been graduates. What do they do now?
A brief warning on compensation for UBS’s investment bankers
Finally, it seems very unlikely that UBS’s investment bankers will be paid well this year. Compensation per head at the investment bank was down 19% in the first nine months of 2012 compared to the same period of 2011. The only other bank to have reduced investment banking pay per head this year is JPMorgan, where compensation is down 7%.