November 17, 2011 / 2:44 PM / 7 years ago

UBS slashes investment bank, cuts profit targets

(Reuters) - Swiss bank UBS UBSN.VX will slash risky assets by almost half and shift focus back to wealthy people’s money as it pledged its first dividend since the financial crisis.

UBS cut its return-on-equity target to 12-17 percent for 2013 from the 15-20 percent that it abandoned in July in the face of tough new capital rules and turbulent markets.

“We have chosen to substantially reduce the risk profile of the bank by exiting and downsizing businesses which are not value added to our client franchise or deliver unattractive risk-adjusted returns,” UBS boss Sergio Ermotti said.

Ermotti, who took charge on an interim basis after Oswald Gruebel quit in September over the bank’s $2 billion trading scandal, was made permanent boss on Tuesday.

UBS said it would cut its investment bank staff 16,500 by the end of 2013 and 16,000 by the end of 2016 from 18,000 now, mainly through attrition and restructuring.

A UBS spokeswoman said that meant a net 400-500 more jobs would go on top of 3,500 staff it said in August it would cut, bringing workforce reduction to 6 percent at the world’s third-biggest wealth manager.

Banks are shedding thousands of jobs as new capital requirements designed to shield them from future crises compound the effect of volatile markets on trading revenue.

UBS will slash by almost 50 percent investment bank risk-weighted assets of 300 billion Swiss francs ($327 billion) by 2016 as it relegates the investment bank to a provider of services to the private bank, which serves wealthy clients.

“No new cost savings were announced, and the list of businesses to be exited is very small in our opinion,” said Deutsche Bank analysts Matt Spick and Alexander Hendricks. “We think the new strategy is a disappointment.”

U.S. listed UBS shares (UBS.N) traded down 1.7 percent by 1900 GMT at $11.32.

Earlier this month, arch rival Credit Suisse CSGN.VX said it would cut 1,500 jobs and 50 percent of risk-weighted assets in fixed income by 2014 as it more closely aligns investment and private banking.

UBS said its investment bank will expand areas including commodities, and dump capital-intensive businesses like asset securitization and complex structured products. It will exit proprietary trading.

WEALTH MANAGEMENT FOCUS

Meanwhile, the bank will invest in wealth management, targeting 4,700 client advisors by 2016 from 4,252 now.

However, it pared its targets for that business too, aiming for an annual increase in net client assets of 3-5 percent from the more than 5 percent goal it set in 2009.

Ermotti affirmed his commitment to the U.S. brokerage business, reiterating it was not for sale.

UBS stuck to a target for an annual pretax profit for that business of $1 billion, saying its focus on the rich produced strong client inflows.

In his presentation slides at a conference in New York, Wealth Management Americas CEO Robert McCann said the business was gaining traction, with strong growth targeted in its banking and lending and advisory businesses.

UBS said it would propose a dividend of 0.10 Swiss francs per share for 2011 and a progressive capital return program thereafter.

UBS made its last cash dividend in 2006, when it paid out 2.20 Swiss francs a share.

“It’s not much more ambitious than before and I think there will be a bit of disappointment overall. The positive is that they start paying a dividend earlier than expected,” Execution Noble analyst Andrew Lim said.

Massive losses following more than $50 billion in writedowns on illiquid securities in the financial crisis forced UBS to stop payouts as it sought to rebuild capital.

($1 = 0.917 Swiss Francs)

Writing by Emma Thomasson, additional reporting by Martin de Sa'Pinto in Zurich; Editing by Jon Loades-Carter and Will Waterman

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