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Hundreds of UBS City jobs face axe
Nick Goodway, Evening Standard1 Oct 2007
UBS today said it will sack hundreds of City bankers by Christmas, after huge losses triggered by the subprime crisis in the US pushed it into its first loss for nine years.
The swingeing cuts will see around 1500 jobs culled worldwide in the investment banking division, which is based in the City. Between 300 and 350 senior bankers will be sacked in its loss-making fixed-interest division.
Marcel Rohner, who was appointed chief executive in July, has also taken the axe to the most senior staff with the head of the investment bank, Huw Jenkins, demoted, and chief financial officer Clive Standish departing.
Rohner said: "Our first quarterly loss in nine years is an unsatisfactory result. I have therefore taken decisive action to be as transparent as possible. UBS operates on the principle that management is accountable to shareholders. These events have led to the management changes announced today."
UBS said it had taken "substantial losses in its fixed income, rate and currencies division ". It said the writedowns were of the order of Swfr4 billion (£1.6 billion).
That is more than those recently reported by US investment banks Lehman Brothers, Bear Sterns, Goldman Sachs and Morgan Stanley.
Merrill Lynch, the third largest US investment bank, could show writedowns of as much as $4 billion on subprime and fixed interest when it reports later this month.
Rohner said that the entire bank would now show a pre- tax loss of between Swfr600 million to Swfr800 million in its third quarter. Analysts had been expecting profits in the region of Swfr3 billion.
The bank said it would be profitable for the full year with nine-month profits still running at round Swfr10 billion.
UBS was rocked earlier this year by the collapse of its Dillon Read Capital Management hedge fund at a cost of $300 million (£146.5 million) which forced the departure of then chief executive Peter Wuffli. He was seen as having tried to switch revenues from subprime mortgages to fixed income trading at just the time that the credit crunch began.
Rohner said that after the writedowns the bank still had direct and indirect exposure to some $23 billion of residential mortgage-backed securities, mainly in the US.
UBS said it would promote Marco Suter, vice chairman, to chief financial officer with other internal promotions to emphasise risk control within the bank. It is also pushing the separate money markets, currencies and commodities division into the larger fixed income division.
Meanwhile, rival Swiss bank Credit Suisse today admitted that its investment banking and asset management arms had "been adversely impacted by recent market events".
But in contrast to UBS, Credit Suisse said that it would be profitable at around market forecasts in its third quarter.
Analysts' reaction to the UBS news:
Olaf Kayser of the research team at LBBW:
"This could weigh on the entire sector and in particular Deutsche Bank, since there is still uncertainty of the magnitude of the charges. However, we would consider the two following points: 1. The business areas of UBS which are not hit by the subprime crisis have achieved a good result in the third quarter. 2. We assume that UBS has chosen a conservative valuation in order to avoid charges and to take the uncertainty out of the market. This is particularly valid when put in the context of the drastic reorganisation of management. We assume that Deutsche Bank will choose a similarly conservative valuation."
Cazenove's banking research team:
"Although not entirely unexpected the magnitude of the writedowns is materially higher than market expectations and is accompanied by senior management changes.
"The sub-prime losses are materially higher than market estimates, which recently had ranged from Sfr1-2bn and the size of the residual sub-prime exposure remains a cause of concern in current markets. Much will depend on how convincing a case management can present on the conference call that the Q3 mark-downs represent the bottom in terms of DRCM losses. The current sum-of-parts case for the stock remains attractive with the Investment Bank on an implicit valuation close to zero."
Reader views (1)
Well in the days of easy credit and in paticular self certified income mortgages, what else could be the result! I think Government should think seriously to avoid any serious meltdown of banking system, money should be not easily available to borderline canidates and interest rates should not be lowered any further.
- Martin Johnson, Birmingham, Uk, 01/10/2007 11:46
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