NEW YORK—After Goldman Sachs’ rosy first quarter earnings results this week, Swiss banking giant UBS AG announced a hefty first quarter loss and more job cuts, a reminder to investors that the banking sector isn’t out of the woods yet.
UBS said it would post a net loss of 2.0 billion Swiss francs ($1.8 billion) for the first three months of 2009. In addition, it would slash around 8,700 positions globally, or 11 percent of its total workforce in an effort to save around 4 billion Swiss francs ($3.5 billion) in payroll expense.
Perhaps more disconcerting than its monetary loss, the bank also reported that clients withdrew more than 23 billion Swiss francs ($20.1 billion) in funds from UBS’s lucrative wealth management business.
“This [cash] outflow was mainly recorded after the announcement of the settlements with U.S. authorities in connection with their investigations into our cross-border services for U.S. private clients,” CEO Oswald Grubel said at Wednesday’s shareholder meeting in Zurich, according to prepared statements.
The wealth management business has been a cash cow for UBS and the division that helped cushion previous losses from investment banking and trading.
The cost cutting and layoffs announced this week are part of UBS’s strategy to return to profitability as the global financial markets continue to exhibit extreme volatility, Grubel claimed. The cuts will mostly affect middle and back-office support personnel.
“Assets under management have dropped sharply, margins are falling and the whole financial industry is shrinking,” he said. “Right now we do not have full control over our revenue streams; they are heavily affected by market trends.”
According to Bloomberg estimates, since the beginning of the financial sector meltdown in late 2007, banks globally have laid off almost 300,000 workers and written down $1.3 trillion in asset values.
UBS executives also spoke at length about recent changes in the Swiss banking industry related to bank-client confidentiality over tax cases.
“The operating conditions for cross-border wealth management will change, and this will affect how our clients act. We shall make sure that this does not catch us unprepared,” Grubel said.
However, U.S. clients have already started to withdraw funds after the Internal Revenue Service cracked down last month on illegal foreign bank accounts. UBS released 300 client names to federal officials after settling its case with the IRS for $780 million.
One high profile case involves UBS client Steven Rubinstein, a Boca Raton, Florida-based accountant. He was arrested and charged with falsifying previous tax returns and is currently free on $12 million bail.
Rubinstein hid more than $6 million in stocks and gold assets from the IRS, according to court filings. He was the first U.S. client of UBS arrested under the investigation.
Robert Moran, another client and president of Fort Lauderdale’s Moran Yacht and Ship, pleaded guilty this week to charges of filing false tax returns to conceal secret foreign accounts.
Moran reached a plea deal with prosecutors and faces up to three years in prison. Federal authorities said Moran did not report interest income from his UBS account in his 2007 tax return.