UBS to cut 10,000 jobs to free up cash for investors

The decision by Zurich- based UBS to cut as many as 10,000 jobs and retreat from its capital-intensive trading businesses will help position Switzerland’s largest bank to return more funds to its shareholders.

UBS intends to split off and wind down much of its fixed-income operations, reducing risk- weighted assets by an additional 100bn Swiss francs (€83bn), a person with knowledge of the matter said.

The reorganisation stands to help UBS meet its capital requirements faster than it otherwise would.

CEO Sergio Ermotti is overhauling the bank as Swiss regulators pressure UBS and Credit Suisse Group AG to boost capital and scale back trading and investment-banking operations. Ermotti said in July that once the bank reaches its capital targets under Basel III rules, UBS plans to “implement a policy of returning capital to our shareholders in different forms”. The bank paid its first cash dividend in five years for 2011, amounting to 10c a share.

“UBS is going back to its roots,” Kian Abouhossein, a London-based analyst at JPMorgan Chase & Co said. “UBS is in fact the easiest restructuring story besides Credit Suisse by closing most of fixed income, cutting back-office costs, freeing up capital and becoming even more wealth-management gear-ed.”

The additional cuts would leave the bank with less than 35bn francs in risk-weighted assets, and UBS as a whole with less than 140bn francs, based on targets the company previously disclosed for 2016. As UBS aims for a Basel III common-equity ratio equal to 13% of risk- weighted assets, it will need about 18.2bn francs in common equity once the cutting is done.

At the end of June, UBS already had 26.7bn francs in common equity.

“I would imagine the stock will fly [today]” said Christopher Wheeler, a London-based analyst at Mediobanca SpA. “I think the market will welcome UBS facing up to the reality that it is not a market leader in fixed income.”

UBS rose 9.4% in Swiss trading this year to 12.23 francs, lagging behind the 15% gain in the Bloomberg Europe Banks and Financial Services Index, which tracks 38 companies. UBS’s share price is 78% lower than it was five years ago.

The bank’s executive board, headed by Ermotti, met in New York last week to consider the reorganisation, people familiar with the talks said.

An announcement may come when UBS reports third-quarter earnings today, the person said.