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UBS Group Eliminates Jobs in Investment Banking Unit

In line with its strategy to reduce costs, UBS Group AG UBS is reportedly eliminating jobs at its investment banking division. The news was first reported by Bloomberg, citing people familiar with the matter.

Last week, the Swiss banking giant dismissed at least a dozen of employees from its London offices. Affected positions include in equities, debt capital markets and leveraged finance operations.  

Amid revenue pressure and the challenging market backdrop for investment banking, the move is not surprising. Notably, the company reported a 64.2% decline on a year over year basis in net profits for the first-quarter 2016. The investment bank unit recorded adjusted operating profit before tax of CHF 370 million ($372.4 million), down 55.7% year over year.  

Post the global financial crisis, UBS has been undertaking strategic measures and has gradually shifted focus to its wealth management business in order to reduce reliance on investment banking. Among several initiatives, maintaining cost discipline remains a key objective for the company.

In the first-quarter 2016 earnings call conference, UBS Group Chief Executive Officer, Sergio P. Ermotti noted that the company achieved further reductions of 100 million during the quarter. He stated, “As we have progressed on detailing our cost reduction plans, we have defined specific front-to-back initiatives that we will now implement to achieve our net 2.1 billion savings target, despite increased on-going regulatory costs.”

Ermotti had also added, “There is no magic bullet that can fully offset material revenue headwinds without compromising sustainable profitability, or in fact, the future of our franchise. Therefore, we will continue to carefully balance our investments in structural growth with tactical adjustments to our cost base to mitigate the cyclical headwinds we are facing.”

As of Mar 31 2016, the investment bank division of UBS employed 5,218 personnel, down from 5,243 as of Dec 31 2015.

Bottom Line

European banks are currently facing revenue pressure as volatility in commodity prices, slowdown of emerging markets and global growth concerns continue to affect business and client activity levels as well as market volumes. Stricter regulations and declining fixed income trading have forced banks to reduce costs through job cuts and compensation reduction. Earlier this January, Barclays PLC BCS said that it will axe around 1,000 investment banking jobs, primarily across Asia.

Currently, UBS carries a Zacks Rank #4 (Sell). A couple of favorably ranked stocks in the foreign banks space include Canadian Imperial Bank of Commerce CM and DBS Group Holdings Ltd DBSDY, each sporting a Zacks Rank #1 (Strong Buy).

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