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)
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:
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?
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%.