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12 May 2008 00:00
UBS, the Swiss bank that has been Europe’s biggest casualty of the credit crunch, is to axe 5Â 500 jobs.
Of those 2Â 600 face compulsory redundancy, mainly in its stricken investment banking arms in London and New York, as it struggles to regain its reputation and investor confidence.
The bank said on Tuesday it lost about $10,9-billion in the first quarter—mildly better than the $11,3-billion it indicated it expected on April 1—and warned that financial markets would remain difficult.
It confirmed it had written down assets of $17,9-billion, bringing the total so far to $34,9-billion; its global asset management business saw net outflows of $15,6-billion, while its Swiss business banking saw outflows of $1,79-billion as clients switched to other banks.
The scale of the damage, only partially offset by inflows of $5,29-billion in private banking, sent the shares down almost 5%.
The biggest hit was taken in investment banking where pre-tax losses were $17,87-billion, compared with a profit of $1,4-billion a year earlier.
The bank, which has already shed 860 staff in investment banking, said that of the further 5Â 500 job cuts, most of the 2 600 compulsory redundancies would be in London and New York.
Elsewhere, it would use natural attrition and internal redeployment to achieve a further reduction of 2Â 900. Jerker Johansson, the investment bank’s new chief, brought in from Morgan Stanley to downsize the business, said the job cuts would be spread equally across seniority but the fixed-income department would take a 26% hit.
He told a conference call that investment banking would employ 18% fewer by mid-2009 than at its peak in the third quarter of last year.
“This is not something that I or anyone else regard as a good thing, but it is necessary to have appropriate scale and allocation of resources for the business we want to be today and in the future,” he said.
He confirmed that the bank would dispose of parts of its business, including municipal bonds.
Johansson also confirmed that UBS had disposed of part of its sub-prime mortgage exposure with a nominal value of $22-billion to BlackRock, the distressed asset fund manager, for $15-billion in a move to reduce its overall risk.
Marco Suter, chief financial officer, said UBS had reduced its exposure to the US sub-prime market by 60% to $15,6-billion by the end of March.
Overall, UBS’s exposure stood then at $57,3-billion, including an increased exposure to monoline insurers of $6,3-billion.
Marcel Rohner, chief executive, said: “We can see tangible effects as a result of our initial responses to the losses. While our exposure is still subject to swings in market conditions, we see market demand for these securities returning in certain areas and at the current level of valuations.”
He told analysts that UBS would recover its reputation as market conditions improved and its own measures to reduce risk took effect, arguing that the circumstances would not be repeated.
“We will take the necessary actions to reduce costs and we will not rest until we have fully restored the trust of our clients, shareholders and employees.”
Once a paragon of caution, now a byword for recklessness, UBS has been forced to raise $36,8-billion in new capital, sack its long-standing chairperson and several senior executives and radically reshape its board and risk management.
But it still faces challenges for further change from activist investors led by Luqman Arnold, its former chief executive and now a shareholder through his Olivant investment fund.
The depth of the credit crunch also spilled over on to SwissRe, the world’s biggest reinsurer, which reported further write-downs of $774,2-million on top of $1,13-billion so far, with a further $189-million likely.
Its shares fell 5,5% as it posted a 53% plunge in net first-quarter profit to $589-million.—Â
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