Layoffs Watch '11: UBS Planning To Downsize Its Rogue Trading Division


Here are two things that you don't hear every day, just almost every day: layoffsatUBS and not so hot supervisionoftrading at UBS.

Actually the good news is, strictly speaking, there were no new layoffs announced today, anyway:

The bank also announced an additional 300 job losses on top of the 1,575 already earmarked. The extra job cuts were expected to come through attrition.

But UBS's natural shrinking is, as it's previewed pretty extensively, part of its plan to move from being universal rogues to focusing on roguish wealth management:

The Zurich-based bank's strategy will center on its wealth-management businesses and its position as the strongest universal bank in the Swiss market. To serve wealthy clients, some investment-banking activities are also essential, but they need to be less complex, absorb less capital and be profitable, UBS said. ...

UBS plans to rid its balance sheet of 145 billion Swiss francs ($161 billion) by selling or running off risky assets. The biggest cuts come at the investment bank's FICC unit—short for fixed-income, currencies and commodities—which absorbs a disproportionate amount of capital. Among other moves, UBS plans to exit its asset securitization business and will scale back its long-end rates businesses.

Fair enough. Getting rid of capital-intensive FICC trading and securitization businesses should definitely reduce risk, both of legitimate losses and of the less legitimate kind. (Maybe they can even dodge the MBS CDO fine bonanza.) Here's a list of the planned cuts; various trading businesses are on the block, though there are apparently only "small cuts" planned to synthetic equity, which I'm assuming is a more PC name for Kweku Adoboli's delta one.

So they'll be left with wealth management, and businesses that closely support wealth management. And it's not like there's a lot of rogue trading you can get up to in wealth management. Right?

UBS suffered unauthorised trading on the Africa desk of its UK wealth management division in 2007 and initiated a root-and-branch review of its compliance procedures, a UK tribunal has heard. ... [A] string of incidents occurred within UK wealth management, including a payment fraud, client-money reconciliation problems and misuse of client money.


Combined with UBS's dicey recordkeeping in stock lending, which they'll presumably keep around for their private clients' portfolios, this is not encouraging for UBS's efforts to wean itself from the thrill of rogue trading / not supervising anyone.

That said, the upside is that, if you're a regulated bank, there's actually only so much badness you can get up to with client money. It's easy to lose a few billion dollars here and there gambling your own money; it's harder to do with client money, and the numbers involved in UBS's Africa PWM and stock lending businesses seem to be small, at least compared to Kweku's katastrophe. Even MF Global - whatever the heck they did with their missing $600mm, they probably didn't roll it into roguish prop bets, William Cohan notwithstanding.

But, as UBS has worked tirelessly to prove, if you put your mind to it you can lose money on rogue trading just about anywhere. And, as Jon Corzine will be happy to tell Sergio Ermotti, the downside is that losing a little bit of client money in unauthorized ways can work out much worse than losing a ton of your own money.

UBS Reveals Investment-Bank Plan [WSJ]

Fresh UBS rogue trading revelations [FT]