By JOHN HEILPRIN, Associated Press
GENEVA (AP) — A day after UBS AG announced it was cutting up to 10,000 jobs by 2015, UBS chairman Axel Weber is warning that many of the Swiss banking giant's rivals may have to follow suit.
The Zurich-based bank is seeking to put scandals and losses behind it with a plan to downsize its investment banking unit and drop risky trading activities.
Its third-quarter net loss of 2.17 billion Swiss francs ($2.31 billion) was largely due to its investment banking unit, where new rules for increasing capital reserves reduce the amount of money for investing.
"I suspect that many banks have not yet really understood what the consequences of the new capital rules for business will be when they come into full effect in 2019," Weber was quoted as saying in Wednesday's edition of the German daily Handelsblatt.
"We, on the other hand, see this new world very clearly," he said. "Besides that, Swiss rules commit us to even higher own capital demands than the 10 percent capital quota that Basel III orders."
Governments, through the international banking agreement known as Basel III and the European Union, are pushing banks to increase their capital or financial reserves that can absorb losses.
That is intended to make banks less likely to fail and dump large bailout costs on taxpayers and the wider economy. But it requires banks to find those extra reserves somewhere, or to make less risky investments, or both.
The aim is to prevent another shock to the global financial system like the 2008 Lehman Brothers collapse, and to protect taxpayers from being called to the rescue. The Basel III rules were developed by a committee of the Bank for International Settlements, based in Basel, Switzerland, a unique institution that coordinates policy and provides banking for all the world's central banks.
Some countries — such as Switzerland, Britain and the United States — have set their own rules that are even stricter.
Deutsche Bank's new management team, co-CEOs Juergen Fitschen and Anshu Jain, have also announced plans to cut costs, tighten pay practices and cut jobs to deal with a changed environment that includes higher capital requirements and public skepticism about banker compensation and practices. In July, the bank said it would cut 1,900 employees, most of them in investment banking, as a cost-saving measure. It is also looking to cut expenses on redundant computer systems and sell some of its real estate.
Deutsche Bank is shedding risky loans and investments by putting €135 billion of them in a non-core operations unit that will manage and sell them. A third should be gone by March of next year, the bank said.
Last month, UBS's crosstown rival Credit Suisse Group unveiled an extra 1 billion Swiss francs in cost-cutting — with an undisclosed number of further job losses — as it posted a 63 percent fall in third-quarter profits following an accounting charge on its debt. Switzerland's second-biggest bank had previously announced 3 billion francs in cuts that include shedding 7 percent of its workforce, or about 3,500 employees.
"Yes, there is regulatory pressure," Weber was quoted as saying. "But the market environment has changed as well. Banks that see the current recovery of the markets as a lasting development are wrong. ... The market environment will remain difficult."
Associated Press writers Geir Moulson in Berlin and David McHugh in Frankfurt contributed to this report.
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