UBS is making thousands of redundancies. It's not great for its fixed income or operations staff. Nor is it good news for other European banks.
The Swiss bank made an impromptu announcement yesterday, warning that it plans to cut 1,500 jobs before the end of the year, following losses of €360m in Q3.
The Telegraph reports that 350 of the jobs will go in London, while Kinner Lakhani, an analyst at ABN AMRO says most of the cuts are set to fall in 'shared services' (read operations) divisions, with 300 to 350 in the bank's fixed income division. "The message they are sending is that private banking will be untouched," he says.
It hasn't been a great year for UBS. After losing Ken Moelis, head of its uber-successful US investment banking arm in March, the Swiss monolith revealed substantial losses at its hedge fund unit, Dillon Read Capital Management, which it closed in May. Yesterday's profit warning coincided with the announcement that Huw Jenkins, chairman and chief exec, was set to retire. And new chief executive Marcel Rohner says the bank is/was particularly exposed to the disintegrating US sub-prime market.
Given its travails, UBS may struggle to keep hold of the 20,500 or so staff it doesn't plan to dump. "There is definitely going to be uncertainty," says Jason Kennedy, managing director of search firm Kennedy Associates. "The staff at UBS are cocooned and tend to buy into and believe the ethos. It's already known not to be the best payer in the world. The average employee might now rethink their long-term commitment and consider moving outside the UBS family."
Other European banks are set to announce third-quarter results at the end of October. Deutsche Bank is predicted to take a battering, but Simon Adamson, banking analyst at research firm CreditSights, predicts UBS will be worst hit from the sub-prime crisis: "They were going into this market turmoil in a worse shape than others - their fixed income division was already underperforming and they have a huge inventory of sub-prime loans."
UBS is unlikely to be the only one wielding the hatchet, however. Citigroup is also in pain after announcing a 60% drop in Q3 earnings thanks to loan write-downs, dodgy prop trades and defaulting credit card holders; the US bank's 1,000-person redundancy programme may yet multiply. Lakhani says other European banks are likely to "resize certain parts of their fixed income business, essentially in structured credit, securitization, leveraged finance, and prop trading".