UBS CEO Sergio Ermotti is displeased. “We are not satisfied with the investment bank’s financial performance this quarter,” he told investors on this morning’s call. “We are implementing a number of actions to evolve our business model.”
‘Evolving the business model’ sounds like a euphemism for cost-cutting and, unsurprisingly, cuts are on the way. UBS intends to remove CHF90m (net) in costs from the investment bank going forward. In the short term, this will lead to a CHF100m restructuring charge.
“The CHF90m reduction in costs really is 90% personnel costs,” said CFO Kirk Gardner in today’s investor call. In fact, gross cuts to personnel spending in the investment bank are likely to be even greater, said Gardner. The CHF90m figure includes additional investments in electronic trading and technology plus extra spending on controls due to “regulatory headwinds.”
The cuts need to be made. Profits at UBS’s investment bank fell 62% year-on-year in the third quarter and were down nearly 50% year-on-year in the first nine months of 2019. The bank gave a litany of reasons for the drop, including a strong previous period, its focus on the weaker markets of Europe and Asia, a litigation charge, and spending on controls and technology. But still, a collapse in profits is a collapse in profits.
CHF90m of cost cuts doesn’t necessarily imply thousands of redundancies. Pay per head in the front office of UBS’s investment bank is on track to reach CHF535k in 2019, suggesting the bank will only need to make 170 layoffs to reach its target. The new cuts will most impact “senior staff” said Gardner today.
UBS has already made cuts to its equities business but might want to make cuts in its investment banking division in future. UBS’s investment bankers generate very low levels of revenues per head compared to rivals, according to research firm Tricumen. They also had a comparatively bad Q3.
UBS says the cuts have a purpose. - They are intended to align the bank's efforts to clients, focus resources on profitable growth and allow reinvestment in the bank's digital transformation.
Image credit: Rafael_Wiedenmeier, Getty
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