UBS is expected to reveal plans on Tuesday to wind down its fixed income business and fire 10,000 bankers, with shareholders cheering one of the biggest bonfires of finance jobs since the implosion of Lehman Brothers in 2008.
The move will focus Zurich-based UBS around its private bank and a smaller investment bank, ditching much of the trading business that saw it lose $50 billion in the financial crisis and one rogue trader lose $2.3 billion last year.
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Chief Executive Sergio Ermotti is expected to announce plans for a slimmer, less risky investment bank focused on equities, foreign exchange trading and giving corporate advice.
Investors are keen for details on how the Swiss bank will wind down the fixed income unit without incurring big losses. Employees complain they have been in a state of limbo after months of rumors of cuts.
"It's becoming like torture, especially for those that don't think they will be compatible with the new Orcel team," said one employee, referring to Andrea Orcel, a close ally of Ermotti from Bank of America who arrived in July and is expected to run the investment banking unit's remaining businesses.
Bankers were already anxiously awaiting news of an initial 400 job cuts set to hit this week, though that will likely be just the beginning of a cycle of layoffs that will hit those in fixed income trading the worst.
A smaller investment bank would leave UBS to focus on its private bank, which looks after the affairs of rich people. It is the second-largest operation of its kind in the world after Bank of America with $1.554 trillion in assets according to a compilation by Scorpio Partnership.
UBS was one of the banks hardest hit by the financial crisis when its fixed-income unit racked up more than $50 billion in losses after gorging on subprime securities, forcing it to seek a bailout from the Swiss government.
After settling a damaging U.S. tax probe in 2009, the bank had just started to rebuild client confidence when the $2.3 billion trading scandal surfaced in September last year.
Kweku Adoboli, who worked on the bank's London-based exchange-traded equities funds desk, has pleaded not guilty to two counts of fraud and four of false accounting over the costly bets. His trial is under way in London.
The overhaul expected to be announced on Tuesday comes against the backdrop of far tougher regulation on riskier securities trading activities, and would represent a return to advisory roots stemming from UBS's purchase of Warburg, a British merchant bank, in 1995.
UBS stock rose sharply on Monday, with investors cheered by the prospect of the bank paying out to shareholders the capital freed up as a result of the overhaul.
However, there is still plenty of uncertainty surrounding the plans to wind down the fixed-income arm, which includes activities such as trading in commodities and credit. Analysts say there are few precedents of a bank winding down such a big operation, making it hard to gauge the cost the move.
"We will need to see whether they can run down the assets and the cost base without disruptive losses," Barclays analysts Jeremy Sigee and Kiri Vijayarajah wrote in a note to investors.
The expected UBS cuts will add to the tens of thousands of jobs the financial sector has shed globally since the financial crisis of 2008. UBS's investment bank and fixed-income business in particular was the object of public anger in Switzerland following the 2008 government bailout.
UBS's private bank also faces challenges, with profits falling as Swiss banking secrecy is weakened by repeated demands from foreign governments determined to recoup tax on undeclared funds held in offshore accounts.
UBS's rival Credit Suisse said last week it was also making more cost cuts as part of efforts to bolster its profits and capital position.
The UBS overhaul is expected to be announced alongside what analysts forecast to be a 55 percent drop in third-quarter net profit.
(Reporting By Katharina Bart. Additional reporting by Sarah White and Sophie Sassard in London.)