/ 6 May 2008

UBS to slash 5 500 jobs as it sells down subprime

UBS will cut 5 500 jobs in one the biggest purges seen so far in the financial markets crisis, as the Swiss wealth-management titan slashes at the investment bank that plunged it into turmoil.

UBS also said it has a preliminary deal with United States asset manager BlackRock to sell a $15-billion portfolio of subprime mortgages, in what the bank said was a signal the market for ailing US real-estate loans is recovering.

Shares in the group fell 5% as investors worried the crisis had ravaged UBS earnings power, as signaled by a sharp slowdown in new money entrusted to it by its large base of wealthy clients.

The latest 5 500 staff cuts come on top of 1 500 already completed and represent a reduction of 18% of total group headcount since mid 2007, the bank said.

The banks chief said the asset sale agreement with BlackRock offered light at the end of the tunnel in the market for risky mortgage assets.

”We see clearly that there are sophisticated investors coming into this market, and this in itself we view as strong support,” chief executive Marcel Rohner said in a conference call with journalists on Tuesday.

UBS cautioned that conditions in financial markets were still tough, and it declined to offer any results forecast. But the group said it did not need to raise more capital beyond existing measures that total around 39-billion Swiss francs.

”The same is true for UBS as for the entire sector: The worst is likely over,” said analysts at bank Wegelin.

”However, there is little momentum for the future. Even if the job cuts are able to lower costs, the current outlook is anything but rosy.”

UBS reported a first-quarter loss of 11,535-billion Swiss francs ($10,9-billion), slightly better than it had announced in April and less than the 11,9-billion analysts expected.

But there were signs that the crisis was worrying wealthy clientele.

The bank saw net inflows in its two wealth-management businesses of 5,6-billion francs in the quarter — a sharp decline and a trend one analyst described as ”alarming”.

UBS shares were down 4,83% to 35,10 francs at 8.28am GMT, leading a decline in the Dow Jones European banking stocks index, which was down 1% at the same time.

Goodbye top tier

UBS staff are among the first to feel the severe pinch of the credit crisis and many of those made redundant will enter a difficult jobs market.

Other casualties of the global markets crunch such as Citigroup are also making deep staff cuts. Even rivals which have escaped lightly, such as Goldman Sachs, want to slash headcount.

The UBS cuts mark a dramatic departure from only a year ago, when UBS still aimed to hold ranks with the world’s largest investment banks.

UBS’s new investment banking head, Jerker Johannson, said the layoffs would target weaker businesses, with some areas being cut by 50% and others, such as the municipal bonds unit, being sold or closed down.

It is aiming to make a pretax profit at the investment bank of four billion francs when markets return to normal.

UBS is Europe’s biggest casualty of the subprime crisis after posting over $37-billion in writedowns.

Having already swept out senior management, Tuesday’s announcement marks the largest effort yet by the bank to reshape itself and face a downturn in the investment banking sector.

But pressure remains on UBS to do more, with activist investor group Olivant criticising its choice of lawyer Peter Kurer as chairperson, and called for the group to consider a sale of its investment bank.

Analysts expect it to make a net loss of over five billion Swiss francs in 2008 on the back of subprime writedowns, restructuring costs and lower earnings. – Reuters 2008