UBS To Cut 5,500 Jobs After Loss

LONDON — Almost every time the Swiss banking giant UBS addressed its investors over the last few months, it has been to warn of ever-greater write-downs related to the subprime market.

On Tuesday, UBS, Europe’s hardest hit bank in the tight credit market, said that it had sold $15 billion of subprime mortgage debt and would cut 5,500 jobs as part of its cleanup, news that some investors saw as an indication that the bank was dealing with its problems.

But as the bank is slowly getting a grip on its subprime exposure, it already faces new challenges elsewhere. Customers are withdrawing money from its asset- and wealth-management business and it is still looking for a long-term strategy for its investment banking unit.

“The absence of horrors and no further write-downs are good news,” said Peter Thorne, an analyst at Helvea in London. “But the private banking business will get worse before it gets better and the job cuts are more tinkering with the investment banking business than anything else.”

The subprime crisis in the United States and the credit market turmoil that followed have taken a heavy toll on UBS. In a hope to reap bigger returns, UBS once known for its conservative investment strategy had heavily invested in the market for subprime mortgage securities. Now the bank, which is based in Zurich, is digesting a net loss of 11.5 billion Swiss francs, or $10.9 billion, and write-downs on mortgage-backed securities of $19 billion in the first quarter, bringing its total write-offs to about $38 billion since the beginning of the crisis.

The losses already led to the departure of a chief executive, a chairman and other senior managers and prompted UBS to seek emergency investments by Singapore and Middle Eastern funds. It is raising additional funds through a rights issue. On Tuesday the bank announced plans to exit the municipal bond business in the United States and said it agreed to sell distressed mortgage assets to the asset management firm BlackRock for $15 billion, a 32 percent discount.

The bank also plans to cut 5,500 jobs by the middle of next year, including 2,600 in the investment banking business in New York and London and said that it would continue to “manage costs aggressively in 2008.”

Marcel Rohner, who took over as chief executive last year, acknowledged that repairing the bank’s balance sheet and reputation was a priority that would not happen overnight.

“Although we’ve made some big progress in the first quarter we still have some way to go to improve profitability and the reputation of UBS,” he said Tuesday on a conference call with analysts and investors. “We won’t rest until we’ve fully restored confidence.”

Some analysts warned that cutting costs would not be enough to salvage UBS’s reputation, which suffered together with the bank’s share price and earnings and started to hurt the asset management and wealth management businesses, the bank’s crown jewels.

Swiss clients withdrew 2.5 billion Swiss francs from its wealth management division while inflow from international clients was weak at 5 billion francs, a JPMorgan analyst. Kian Abouhossein, wrote in a note to investors. The “results reflect the underlying franchise deterioration in wealth management and the investment bank.”

The immediate outlook for the business is not much better. Mr. Rohner said it might take “a few quarters” for the wealth management business to improve.

“Customers are saying they can’t manage their own money so how can they manage mine,” Irfan Younus, an analyst at NCB Stockbrokers in London, said.

In the long-term, there is little doubt that UBS’s wealth management business will recover and return to be the “very strong franchise” it has been, Mr. Younus said. What may be the bigger headache is the investment bank.

Jerker Johansson, who joined UBS from Morgan Stanley a month ago to run the investment bank, said he had put all businesses under review to see whether they met certain strict criteria and was working on a system to optimize the allocation of capital. He said he expected the fastest growth to come from emerging markets like Asia, Latin America, Russia and Eastern Europe and the business to continue to profit from its links to UBS’s wealth management division.

But UBS is still working on a strategy for the business, which has been growing rapidly on the back of those riskier investments that it is now trying to unwind. With nothing to replace the high returns of the last few years, the contribution of the investment bank is likely to shrink and some investors have already asked for the business to be split from the rest.

Adrian Darley, a fund manager at Resolution Asset Management in London, said the key was to find the right size for the unit.

“It’s important that they get the shape of the investment banking business right,” Mr. Darley said. “You don’t want to cut too much.”

David Jolly contributed from Paris.

David Jolly contributed from Paris.

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