FILE - In this Feb. 7, 2012 file photo UBS CEO Sergio Ermotti speaks at a news conference announcing the bank's 2011 full year result in Zurich, Switzerland. Swiss banking giant UBS AG announced massive layoffs Tuesday, Oct. 30, 2012, along with huge losses in its third-quarter results, saying it aims to trim as many as 10,000 employees, or some 15 percent of its staff, to drastically shrink its ailing investment bank. Ermotti said the investment unit, which has been hit by a series of costly blunders in recent years, will "continue to be a significant global player in its core businesses." (AP Photo/Keystone, Steffen Schmidt)

Katharina Bart Zurich

UBS unveiled plans yesterday to wind down its fixed income business and fire 10 000 bankers, as it adapts to tougher capital rules that make it more difficult for investment banks to turn a profit since the financial crisis.

Zurich-based UBS will focus on its private bank and a smaller investment bank, ditching much of the trading business that ran up $50 billion (R433bn) in losses in the financial crisis, as well as a $2.3bn hit from trader Kweku Adoboli last year, now on trial on charges of fraud and false accounting.

Chief executive Sergio Ermotti, a former Merrill Lynch and UniCredit banker who took over after the Adoboli affair last year, is leading the three-year overhaul, which is aimed at saving Sf3.4bn (R31.5bn), on top of existing spending cuts of Sf2bn.

Former investment bank co-head Carsten Kengeter will lead the isolation and winding down of its fixed income activities that are no longer profitable as a result of tougher capital rules on riskier business introduced after the crisis.

The remaining investment bank – equities, foreign exchange trading, corporate advice, and precious metals trading – will be run by Andrea Orcel, a recent Ermotti hire from Bank of America who had co-ran the unit with Kengeter until yesterday.

“This decision has been hard but it is necessary to create a UBS that is fit for the future. The business model we are creating will be unique in the banking industry,” Ermotti said.

The measures translate to a 15 percent staff cut, taking UBS’s overall staff to 54 000, from 63 745 now, already down from a 2007 peak of 83 500 as banks have shed tens of thousands of jobs globally since the financial crisis of 2008.

Of the job cuts, 2 000 will be front-office investment banking staff, the revenue generators. About 2 500 positions would go in Switzerland, slightly more than that in the US, and the rest in Britain, Ermotti said.

A smaller investment bank will leave UBS focused on its private bank, which looks after the affairs of the wealthy. With Sf1.6 trillion in assets, it is the second-largest operation of its kind after Bank of America.

UBS shares, which soared 7.3 percent on Monday in anticipation of the announcement, were up another 5 percent at Sf13.79 in exceptionally heavy late-morning trade, their highest since July 2011, compared with a 0.7 percent rise for the European bank sector index.

UBS, which took a government bailout in 2008 after more than $50bn in mortgage losses, is effectively admitting that an attempt to crack the fixed income big league has failed.

Deutsche Bank said it hoped to benefit from the UBS cuts as its investment bank delivered record third-quarter sales and trading revenue.

But some analysts said other banks might be forced to follow suit even though the UBS strategy was risky.

“While other banks like Credit Suisse are still sticking to their investment banks, which do not even earn their cost of equity, UBS takes the lead in responding adequately to investors’ demands,” said Sarasin analyst Rainer Skierka.

Credit Suisse said it was also cutting more costs to boost its profits and capital but did not announce the same kind of radical restructuring as UBS.

After settling a damaging US tax probe in 2009, UBS had just started to rebuild client confidence when the $2.3bn trading scandal surfaced in September last year.

Adoboli, who worked on the bank’s London-based exchange-traded equities funds desk, has pleaded not guilty to two counts of fraud and four of false accounting.

UBS also aims to reduce risk-weighted assets to below Sf200bn by the end of 2017, from Sf301bn. – Reuters