It looks like UBS needs to make some more investment banking job cuts.
As we noted last week, UBS's investment bank made a loss in the second quarter when its cost income ratio reached 108%. With general and administrative costs rising in the quarter and with fixed compensation costs accounting for around 84% of total pay in the investment bank, UBS appears to have only one option if it wants to return to profitability: redundancies. In the second quarter, its costs overran by CHF130m. At current rates of compensation, that implies the elimination of a further 1,600 investment banking jobs in order to break even.
Headhunters claim UBS is going a step further than this. "It hasn't been announced internally yet, but we're hearing from senior people that UBS will be announcing another 2,000 redundancies over the next few weeks," alleges one London search consultant. "Everyone's going to be under pressure, the cuts will come across the business," he adds.
UBS declined to comment on this redundancy speculation. At the time of second quarter results, CEO Sergio Ermotti said UBS had already reached its investment banking headcount target for 2013 but that it would not be resting there and that costs were a focus.
Firing to hiring to firing
After cutting 6,300 people or 29% of its investment banking staff between Q42007 and Q42009, UBS started adding headcount to its investment bank in 2010. It continued hiring through to Q32011, before the trend went into reversal and headcount was cut again. Since then, UBS has reduced the number of investment bankers it employs by 1,446.
Source: UBS reports
At the end of the second quarter, UBS's investment banking headcount stood at 16,432 - 700 people higher than its low at the end of 2009. If another 2,000 people were cut, UBS's investment bank would shrink back to the size of Warburg Dillon Read circa 1998 (22% of staff were cut between 1997 and 1998 after the Asia crisis). This might seem appropriate given Ermotti's comment last week that investment banking is in a "mid-90s environment." Privately, however, some UBS insiders suggest this is unlikely: 16,000 is seen as a more reasonable headcount figure for the end of 2012.