Shares in UBS soared on Monday after media reports that the Swiss bank will announce it is cutting up to 10,000 jobs as it takes the knife to its investment banking operations - particularly fixed income.
UBS Chief Executive Sergio Ermotti is expected to announce the radical restructuring along with third-quarter earnings on Tuesday, but news of the plans started leaking late on Friday.
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"The changes being discussed in the media, if true, would represent a transformational change for UBS," said analysts at Espirito Santo Investment Bank in a note to clients.
"It is not just an additional cost-cutting exercise at the margin, but a strategy that would enable the bank to return much more capital to shareholders and/or significantly increase the capital ratios."
Shares were up 6.1 percent at 12.83 francs at 1157 GMT, having earlier touched 12.92, their highest since March. The overall European banking index <.SX7P> was down 0.8 percent
The expected cuts will add to the tens of thousands of jobs the financial sector has shed globally since the financial crisis of 2008. UBS's local rival Credit Suisse said last week it was also making more cost cuts.
"If UBS does take radical action, we would expect this to kick off further industry restructuring," Citi analysts said.
JP Morgan analyst Kian Abouhossein, who has long advocated radical cuts to the UBS investment bank, said Ermotti and Chairman Axel Weber, who joined UBS in May, had probably accelerated restructuring due to poor quarterly results.
"If the press reports are correct, UBS is taking the right actions to improve shareholder returns," he said. "The IB is going back to its historic core franchise under Warburg."
UBS bought SG Warburg, a British merchant bank, in 1995.
Analysts polled by Reuters before news of the restructuring emerged forecast UBS will report net profit more than halved in the quarter to 457 million francs ($488.64 million), although the core wealth management business is seen attracting a healthy 6.6 billion francs in new assets.
Ermotti, a 52-year-old former co-head of equity markets at Merrill Lynch, took the top job just 13 months ago after his predecessor Oswald Gruebel stepped down over a trading scandal involving $2.3 billion of losses.
Ermotti had already announced a shift in focus towards the bank's core private banking business serving wealthy clients and away from the investment banking unit which ran up $50 billion in subprime losses, forcing a Swiss government bailout in 2008.
A source familiar with the matter told Reuters on Friday Switzerland's biggest bank is expected to make the cuts across the firm globally, but the bulk of the losses are likely to occur in its hard-hit trading and investment banking areas.
The cuts at UBS, which employed 63,520 staff at the end of June, would come on top of 3,500 job losses announced last year.
UBS already informed about 400 staff at its investment bank they would be losing their jobs, sources told Reuters last week.
The Financial Times cited insiders on Monday as saying the shrinking of the investment bank would take three years and trigger job losses in London, Zurich and the United States. UBS declined to comment.
The fixed-income operations are expected to be split off into a separate unit to be wound down over time, to be led by Carsten Kengeter, a co-head of the investment bank.
Kepler analyst Dirk Becker said the task would be difficult, noting the investment bank still employs over 16,000 people and runs a balance sheet of over 900 billion Swiss francs ($962.3 billion).
"This will not be done overnight," Becker said in a note. "We believe it will cost several billions of francs in exit losses, restructuring charges and realignments for this to get to the desired size."
Andrea Orcel, a close ally of Ermotti who joined UBS from Bank of America this year to work alongside Kengeter, is expected to run the equities, fixed income, foreign exchange and advisory businesses that will remain active.
(Reporting by Emma Thomasson; Editing by Erica Billingham and Alastair Macdonald)