UBS is about to cut 400 investment banking jobs, two sources familiar with the situation said on Wednesday, with more extensive lay-offs at the Swiss bank likely to follow as it withdraws from the riskier and more capital-intensive parts of its business.
Tighter capital rules and a dearth of deals are forcing many investment banks to slash costs, though big losses in the 2008 financial crisis and a rogue trading scandal last year have added to the Swiss group's particular problems.
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The latest job cuts are aimed at UBS's corporate finance business that helps companies with takeovers and fundraising and the fixed income and equities trading units, across all the bank's regions, the sources said.
Bankers in Europe and the Middle East could be the first to hear from management on Wednesday as UBS works its way through the lay-offs, while those in Asia and the United States are more likely to be told on Thursday, one of the sources said.
A spokesman for UBS declined to comment. The bank is due to report its third-quarter results on October 30.
But the latest cuts are likely to be only the start at UBS, which pledged last year to cut more than 5 percent of its workforce, numbering some 3,500 jobs across the whole bank as it pares back the size of the investment bank and puts more emphasis on its wealth management business.
A Swiss newspaper report on Sunday said that UBS is to shed a further 2,000-4,000 cuts in investment banking and central functions as well as 900 jobs in information technology.
The 400 jobs to go this week account for less than 2.5 percent of the investment bank's overall workforce, which numbered 16,432 people at the end of June, and final numbers in this week's round of cuts could swell to 500, one of the sources said.
A sharp fall in investment banking in Europe this year amid the euro zone crisis has pushed banks to cut back even more, even as third-quarter results look set to benefit from better trading income in September.
"(UBS) is playing 'catch-up' with its investment bank peers in trying to manage the division to a suitable ROE (return on equity) for the current environment," Andrew Lim, an analyst at Espirito Santo said in a note.
Deutsche Bank for instance said recently it would cut at least 1,900 jobs, with the majority falling in investment banking.
Nevertheless the UBS cuts will show the investment bank's new boss Andrea Orcel making his first mark on the business since he was poached from Bank of America Merrill Lynch earlier this year.
Bankers in the European corporate finance team have been expecting up to 90 jobs to go there for several weeks now, as former star dealmaker Orcel, who shares the job with trading expert Carsten Kengeter, shakes up team structures.
Some had even been frustrated when lay-offs did not materialize sooner, saying the uncertainty was affecting morale.
"The rumors have been going on for too long, a lot of people just want to see it happen already", said a senior UBS banker this week.
More senior executives such as managing directors are expected to be hit by the lay-offs too, mirroring plans by rivals such as Credit Suisse to take out some of the more expensive staff.
Trading units will also be vulnerable, with revenues from equities still weak at most banks, and UBS has already been pulling back in fixed income, which takes up more capital than most other businesses.
The riskier trading businesses have also come under fire since the bank lost $2.3 billion in a rogue trading scandal last September. Kweku Adoboli, who worked in UBS's equities division, is currently on trial in London, accused of fraud and false accounting.
But while Orcel and Kengeter have been devising cuts for the investment bank, they have also defended its role within UBS, bankers said.
They had made a case to managers including chief executive and former investment banker Sergio Ermotti that lay-offs should fall across the whole of the bank and not just that one unit.
"It looks as though the investment bank guys are still fighting their corner for a symmetrical, across-the-board ... moderate reduction," a third source familiar with the situation said.
(Additional reporting by Dinesh Nair in Dubai; Editing by Greg Mahlich)