Take that; And that. The credit squeeze was in fighting form on Monday, landing a few blinders on the chops of Europe’s investment banks.
UBS was looking particularly bruised, posting its first quarterly loss at group level in nine years. The Swiss bank said that it would write down SFr4bn ($3.4bn) related to losses in its investment bank, mostly on fixed income assets, which would result in a loss of as much as SFr800m for the third quarter. In fact, the write-downs came in short of some analysts’ worst case scenario. UBS shut its Dillon Read hedge fund back in May after suffering substantial losses on its investments in subprime-related securities.
But the trading result within the group’s investment bank would be “very weak,” added new group chief executive Marcel Rohner. The steadier income flows from wealth and asset management were not enough to offset the ongoing problems in the IB operations.
The DRCM debacle had already claimed one scalp - with Peter Wuffli, chief executive, ejected from his position in July. But now UBS is sweeping the decks, in the interests of “decisive action.”
Huw Jenkins, head of the investment bank, falls victim, while group CFO Clive Standish will retire. In the ensuing reshuffle, Marco Suter, executive vice chairman, becomes group CFO, Walter Stuerzinger, the chief risk officer becomes COO, while Joseph Scoby, head of alternative & quantitative investments takes on the top risk management role for the group.
Within the investment bank, Robert Wolf, COO, becomes president of the IB operations, while money markets, currencies and commodities will be rolled into fixed income. Plus there was the phrase that all employees dread: forthcoming is the “initiation of cost reductions in [the] investment bank,” - or 1,500 job losses by year end.
It looks to be a wholesale management rejig at the bank, alongside a serious squeeze on UBS’s IB operations, designed to restrict the bad news to the third quarter and leave UBS less exposed to investment banking and credit markets going forwards. And behind the many people moves is a power-grab for new chief executive and wunderkind Rohner, who will take responsibility for the investment bank for the “foreseeable future” - albeit with Jenkins alongside as a “senior adviser.”
Credit Suisse took the chance to make its own announcement ahead of its results next month - managing to flag up a possible fall in its third quarter profits while looking shiny compared to its rather tarnished rival.
Its investment banking and asset management results, as with the rest of the industry, had been “adversely impacted by recent market events.” But it was profitable in the quarter and net income for the first nine months of 2007 would be at a record level, said the bank.
It added that there was “no indication” that net income from continuing operations would “fall outside the range of plus or minus 20 per cent of CHF1.3bn.”
Anyone want to make a bet on “plus”? The bank last year posted SFr1.5bn for the third quarter, potentially leaving it facing a 30 per cent slump in earnings for the three months. Tune in for the rematch, November 1.
