UBS AG's decision to cut 5% of its work force brings to more than 40,000 the number of jobs eliminated by European banks in the past month as the region's worsening sovereign debt crisis crimps trading revenue.
UBS, Switzerland's biggest bank, said Tuesday that it will eliminate 3,500 jobs, mainly from its investment bank. It follows HSBC Holdings PLC, which announced 30,000 cuts on Aug. 1, Barclays PLC, which is cutting head count by 3,000, and Royal Bank of Scotland Group PLC, which is eliminating 2,000 posts. Credit Suisse Group AG announced 2,000 reductions on July 28.
European banks are slashing jobs this year six times faster than their U.S. peers, according to data compiled by Bloomberg, as concerns about the creditworthiness of Italy, Spain and France roil financial markets and reduce income from fixed-income trading, stock and bond underwriting as well as mergers and acquisitions. Financial firms are also cutting costs as regulators force banks to hold more and better quality capital to withstand future shocks.
"It's a bloodbath, and I expect things to get worse before they get better," said Jonathan Evans, chairman of the executive search firm Sammons Associates in London. "I cannot see a lot of those who have lost their jobs getting re-employed. Regardless of how good someone is, no one wants to talk about hiring. Life will be very difficult for two or three years."
The 46-member Bloomberg Europe Banks and Financial Services Index has fallen 31% this year. RBS tumbled 47%, Barclays 45% and France's Societe Generale SA 48%.
Credit Suisse and UBS both reported a 71% drop in investment banking earnings in the second quarter. Revenue at the securities unit of RBS, in Edinburgh, dropped 35% in the period, while Barclays Capital, in London, posted a 27% decline in pretax profit.
European banks are cutting jobs at the fastest rate since the collapse of Lehman Brothers Holdings Inc. in 2008, eliminating about 67,000 roles so far this year, according to Bloomberg data. U.K. banks account for about 50,000 of those reductions. U.S. lenders announced about 10,500 cuts in the same period, the data shows.
A lot of the cuts are likely to be permanent, according to Stephane Rambosson, managing partner at the executive search firm Veni Partners in London.
"Returns will continue to fall, and costs on revenue have just exploded," Rambosson said. "Somehow banks have to make the equation work. In the long term, there will be far fewer bankers than there were."
The Basel Committee on Banking Supervision will require lenders to more than triple the core reserves they must hold by 2019. Under Basel III, banks will be obliged to hold core Tier 1 capital equivalent to 7% of their risk-weighted assets, compared with 2% under the previous international rules.
UniCredit SpA this week lowered its growth forecasts for the 17-nation euro region for this year and next. The euro area will expand 1.7% this year and 1% in 2012, Unicredit chief euro-zone economist Marco Valli said in a note Tuesday.
That compares with a previous prediction of 2.1% growth in 2011 and 1.7% in 2012.
"The banking industry overall is clearly reshaping its cost base," said Andrew Gray, banking leader at PricewaterhouseCoopers LLP in London. "We may well see some further losses of jobs over the course of the second half of 2011. Exactly where is impossible to say, but we will see some further cuts from other institutions."
