Switzerland's biggest
bank by assets will bring large parts of its fixed income trading
business into a non-core unit leaving a reduced investment bank with
equities trading, foreign exchange and advisory roles.
The non-core operation
will be headed by Carsten Kengeter, current co-head of the investment
bank, and will be wound down over time, two people close to the
situation said.
The split will lead to
another reduction in risk-weighted assets of up to SFr100bn ($107bn) and
will trigger the loss of thousands of jobs in the group's back office
over the next few years.
The job cuts will amount
to almost a sixth of the bank's workforce of 63,500 at the end of June.
They will not happen all at once and the precise number is still unclear
as the exact impact on back-office functions has not yet been
determined.
It comes on top of another -- still ongoing -- program announced last year to cut 3,500 jobs.
The move highlights how
banks around the world are trying to adapt to a radically changed
regulatory and market environment that has left them with lower returns
and much higher capital needs for certain business areas and national
subsidiaries.
The strategy, hammered
out in several executive board meetings in New York this week and set to
be announced next Tuesday, will trigger a large reduction of complexity
and costs in the bank's support functions such as its information
technology department.
"There were several options on the table but UBS has decided on the most radical one," one person familiar with the plan said.
The plan was devised by
Sergio Ermotti, who came in a chief executive last year in the wake of
an alleged rogue trading scandal that left UBS with a $2.3bn loss in the
investment bank.
The restructuring is a
drastic next step in a strategy unveiled almost a year ago by Mr Ermotti
to give UBS's often troubled investment bank a support role for the
bank's market-leading wealth management.
The unit had brought the
Swiss lender to its knees during the financial crisis, forcing UBS to
retrench faster and earlier from the area than most of its rivals.
The investment bank has
been drastically trimmed in the past 12 months by Mr Kengeter, who as
chief executive of the unit cut its risk weighted assets by half and
pushed through a retreat from a number of fixed income trading areas.
This summer, Mr Ermotti
brought in dealmaker Andrea Orcel to become co-head of the investment
bank alongside Mr Kengeter. Mr Orcel will take sole charge of the
remaining investment bank.
UBS's investment bank is
trailing far behind the 26 per cent return on allocated equity that the
bank is achieving in core areas such as wealth and asset management.
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