Staff reductions at Switzerland's two largest banks, UBS and Credit Suisse, are expected to result in layoffs for 100s of investment bankers in the U.S.
When we reported yesterday that Credit Suisse was thinking of cutting 1,600 jobs (according to Fin News), we were lambasted for being overly negative about the Swiss bank. "CS is a great bank, and it's getting better," complained one reader.
Today, however, one news article emanating from Switzerland predicts layoffs at Credit Suisse could be more than expected. The Swiss bank reports its second quarter results on Thursday. According to the Neue Zuercher Zeitung (NZZ), it will announce 1,500-2,000 job cuts at this time, including several hundred investment banking jobs - particularly in the U.S.
Meanwhile, at UBS, which released its earnings today, costs at the investment bank are increasing faster than revenues - the cost ratio was 80.2% in the first half, up from 69.3% in the first half of 2010.
UBS says it wants to reduce costs by up to $2 billion over the next two to three years. Bloomberg suggests the investment bank will cut another 600 jobs, mostly in the back office. But this looks optimistic.
Headcount accounts for 75% of the cost base at UBS. And 39% of all headcount expenses are attributable to the investment bank. If the investment bank is to share the cost cutting equally, this implies it will elimination 1,250 people. Since UBS has a substantial number of investment bankers in the U.S, that could be where many of the cuts occur.
This could turn out to be optimistic.
Now that UBS has given up on its earnings targets, it's looking strategically flocculent or "woolly" and FICC traders are surely at great risk of being sheared off. In today's investor call, Oswald Gruebel said that although more than 50% of what UBS investment bank does is directly related to UBS's other (more profitable) operations, the other 50% isn't. The, "big question," said Oswald, is how large the trading business needs to be in future.
The answer may yet turn out to be not very large at all. All will be revealed at the investor day in November.