UBS' plan to shrink its investment banking operations and focus on wealth management was kicked into high gear by executive leadership today. The Swiss bank, which has suffered some embarrassing losses recently and generally poor performance from its investment bank, announced it would accelerate its transformation by cutting up to 10,000 additional employees over the next two years.
“We are ahead of schedule in our plans to build additional capital strength and reduce both costs and risk-weighted assets,” said UBS Chief Executive Sergio Ermotti in a statement. “The opportunity we have today to accelerate the transformation of our firm is one that I believe is unique.”
The official announcement was made shortly after the bank reported a loss of $2.31 billion in the third quarter. Impairment losses taken to reflect the restructuring effort amounted to a more than $3.3 billion charge.
The job cuts will be mostly in investment banking operations as the firm exits fixed income businesses it says are no longer profitable. The bank will continue to focus on equities, foreign exchange and commodities trading.
Carsten Kengeter, the embattled head of the investment bank, will oversee the wind down of businesses UBS plans to exit, and the slimmed down operations will be run by Andrea Orcel, the former Bank of America executive who joined the firm last year.
“The decision has been a difficult one particularly in a business such as ours that is all about its people,” said Mr. Ermotti.
Wealth management a bright spot
Wealth management in the U.S. continues to be a relatively bright spot for UBS. The division, which is led by former Merrill Lynch executive Robert McCann, eked out another record quarterly pre-tax profit — its third in succession, thanks to a rise in fee and commission income as well as other income. Net interest income for the business fell $11 million. The pre-tax profit margin was 14%.
“The numbers overall were pretty good in terms of asset flows and adviser headcount,” said Alois Pirker, a senior analyst with Aite Group. The business reported net new assets of $4.8 billion for the quarter and increased adviser headcount by 11 to 7,032 advisers from the end of the second quarter. Revenue and invested assets per adviser were up 2% and 4% respectively to $927,000 and $118 million from the previous quarter — the highest in the industry.
“They're making the most with what they've got,” Mr. Pirker said.
He credits Mr. McCann for keeping expenses down while remaining competitive on adviser compensation.
“He's squeezing hard on the operations side but maintaining relatively generous compensation,” he said.
Adviser comp up 5%
Adviser compensation for the quarter was up 5% to $579 million versus a 3% rise in total operating expenses. Commitments and advances to newly recruited advisers totaled $169 million — 10% higher than the third quarter last year.
The Swiss stock market reacted favorably to UBS' plan for a more dramatic retreat from the investment banking business, with the stock rising nearly 6% on Tuesday, when U.S. markets were closed for a second-straight day because of Hurricane Sandy and its aftermath.
“In times like these, several year implementations of plans are no longer acceptable,” said Mr. Pirker. “Those businesses aren't essential for the wealth management units and the market was waiting for them to do more.”