As part of its effort to reduce costs and improve operating efficiency, UBS AG (UBS) has announced 3,500 job cuts. The layoffs are projected to reduce annual costs by CHF 2 billion ($2.5 billion) by the end of 2013. UBS AG will make these job cuts through redundancies, natural attrition and further real estate rationalization.
As a result of the restructuring, UBS AG is expected to take charges of CHF 550 million, of which around CHF 450 million would be incurred in the second half of 2011. A significant part of this CHF 450 million charge would be recognized in the third quarter of 2011.
The CHF 550 million of restructuring charges would include approximately CHF 400 million costs related to personnel and about CHF 150 million related to real estate. Segment wise, Investment Bank would be significantly impacted and would bear 55% of the total CHF 550 million in restructuring charges and 45% for the job cuts.
UBS AG would realize restructuring charges of 30% in Wealth Management & Swiss Bank, 10% in Global Asset Management and 5% in Wealth Management Americas. Around 35% of the 3,500 job cuts would be made in Wealth Management & Swiss Bank, 10% in Global Asset Management, and 10% in Wealth Management Americas.
UBS AG had already announced its intention to reduce headcount and consequently save expenses during the second quarter 2011 earnings release when it posted sequential as well as year-over-year drops in profit.
The top line was substantially impacted. Most of UBS AG’s businesses reported lower revenues as a result of the stronger Swiss franc and reduced trading income in Investment Bank’s fixed income, currencies and commodities (FICC) business. The company’s outlook also remained subdued in light of the new capital and regulatory requirements, coupled with a weakening economic outlook.
With these job cuts, the company enters the bandwagon of other big firms who have taken resort to layoffs in the difficult environment in recent times. This includes Goldman Sachs Group Inc. (GS), HSBC Holdings Plc. (HBC) and Barclays Plc. (BCS).
Going forward, we believe that the volatile capital market conditions will restrict top-line growth at UBS AG. The drop in results in the second quarter 2011 and the company’s conservative outlook is discouraging. While the upfront costs with restructuring activities would impact its current results, we believe such efforts would help improve its operating efficiency in the years ahead.
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