Bucking the trend for good first-quarter news from investment banks is UBS this Wednesday morning.
The Swiss bank has pre-announced its Q1 2009 results, which are due to be published on May 5, warning the markets of a CHF $2bn loss.
Here’s the summary statement, with selected highlights:
UBS estimates that it will report a loss attributable to shareholders of almost CHF 2 billion in first quarter 2009. The loss stems from a negative contribution totaling roughly CHF 3.9 billion due to losses on previously disclosed illiquid risk positions, credit loss expenses and valuation adjustments on the last positions transferred to a fund controlled by the Swiss National Bank. The outlook for remaining risk positions has not changed materially.
Thanks to a further reduction of its balance sheet and risk-weighted assets, UBS, despite this quarterly loss, expects to have a tier 1 capital ratio of roughly 10% at the end of March 2009.
Despite some initial positive signs, UBS will close the first quarter with an overall outflow of net new money. The business division Wealth Management & Swiss Bank recorded a net outflow of approximately CHF 23 billion. This outflow was mainly recorded after the announcement of the settlements with US authorities in connection with their investigations into our cross-border services for US private clients. On the other hand, Wealth Management Americas recorded a positive result, with net new money of around CHF 16 billion.
In order to adapt its size to the changed market conditions and lower levels of business, UBS is planning cost savings by the end of 2010 of approximately CHF 3.5 to 4 billion compared to 2008 levels.
UBS seeks to realize substantial cost savings in all areas. Major job cuts are unfortunately unavoidable. UBS expects to reduce the number of its employees to about 67,500 in 2010. At the end of March 2009 UBS employed 76,200 people in over 50 countries. Some of these job cuts will be in Switzerland.
In the future UBS will maintain its core business – international wealth management and the Swiss banking business – alongside its global expertise in investment banking and asset management. UBS will continue to reduce risks.
UBS will exit high-risk and unpromising businesses. The bank is currently conducting a review to make clear decisions about which businesses it will remain active in and grow, and which it will exit.
In his speech Oswald Grübel noted: “We know where we have to set to work. It will be a long road back to success without any quick fixes. Rather, we will move forward step by step in a rigorous and disciplined manner.”
The text of Grübel’s speech, who took over as UBS CEO in February, is available here. It has a bit more detail on UBS’s overall strategy but is mostly a longer repetition of the above. Oh, except for this bit of waffle on employee compensation:
Ladies and gentlemen, there are a host of other questions regarding UBS about which you might well like to hear my opinion. For example, I have said nothing today about employee compensation.
I could make life easy for myself and simply say that UBS wants to pay its employees in line with going market rates, but you would probably not view this as an adequate response to this issue. The fact is that I generally favor a pragmatic approach and find that ideologies – of whatever stripe – hold little appeal for me. As far as the compensation question goes, we find ourselves at the moment in a transition phase – away from revenue participation toward participation in net profitability. My remarks on the far-reaching changes in the financial sector should also allow conclusions to be drawn with respect to my opinions regarding future potential levels of compensation and bank profits. The markets have changed fundamentally, but even in these times it is still possible to be successful, to get great satisfaction from one’s work and to provide attractive services for clients.
That’s clear then.
Related links:
The IBs of March – FT Alphaville
On Wells Fargo and banks’ well-being – FT Alphaville
The return of the IB capital call – FT Alphaville
Goldman’s blow-out Q1 figures: Reaction – FT Alphaville