This week, UBS (NYSE: UBS) announced a plan to cut 10,000 jobs by 2015 on top of its third-quarter announcement of a net loss of $2.4 billion. Ouch. The bank is trying to shed an unprofitable fixed-income business and build capital, but it has a long and bumpy road ahead.
Whatever you do, don't look back
UBS is a little worse for wear at the moment. It's being investigated for manipulation of LIBOR (the interest banks charge when they lend to each other), and it's suspended one of its traders for possible connection to this scandal. In addition to the investigation, the bank had a $2.3 billion trading loss connected to one of its former traders. And if all of that weren't enough, last year, the bank cut its workforce by about 3,500.
So, a quarterly loss in the billions, after a profitable previous quarter, and cutting 16% of its workforce isn't going to earn them any "bank of the year" awards. But UBS' restructuring plan was set into motion last year, and it's not stopping now. UBS has raised its battered sails and set a course for more capital.
Not quite clear skies ahead
The banking industry as whole isn't doing so hot, so UBS isn't the only one that'll have to navigate through some tough times ahead. The U.S. government is investigating Deutsche Bank (NYSE: DB), JPMorgan Chase (NYSE: JMP) and Bank of America (NYSE: BAC), as well as long list of others, for LIBOR manipulation. The sluggish U.S. economy and the European debt crisis sure haven't helped UBS' situation, and neither has their own shady goings-on.
The one thing UBS has going for it is that it came forward to the government early on, to report possible LIBOR manipulation on its own part. Coming to the government first has given UBS a conditional immunity in the LIBOR investigation.
Looking for the lighthouse
If there's one thing investors should be looking for, it's whether or not UBS can actually increase its revenues. So far, the UBS restructuring has crippled earnings. But if the Zurich-based bank can make the right adjustments, it plans to pay more than 50% of its earnings directly to shareholders in 2015. That's a few years away, but UBS is making unpopular moves to try to make this happen.
Whether investors are willing to weather the storm as UBS changes course is yet to be seen. After the announced job cut plan, UBS shares were up 5%. But this bank is going to need a lot more than a 5% bump to calm most investors' fears that the stock may not be worth holding on to. In 2007, UBS was trading at more than $50 a share; it's dropped to around $15 now. The stock hasn't seen anything north of $20 for over four years, and analysts and investors are starting to lose hope that UBS can pull significant gains anytime soon.
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