Stock Market Predictions

UBS shares rise on pledge to restart dividends

Stock Market Predictions

At an investor event in New York on Thursday, UBS said it would cut investment bank risk-weighted assets by almost half and shift focus back to its core business of managing the assets of the rich as it pared its profitability targets.

UBS said it would propose a dividend of 0.10 Swiss francs per share for 2011, earlier than many analysts had expected, and implement a progressive capital return program thereafter.

UBS, which until a recent $2 billion rogue trading scandal had just started to restore client confidence shaken by a 2008 government bailout, made its last cash dividend in 2006, when it paid out 2.20 francs a share.

"The return to a dividend this year was a genuine surprise. It is only a token dividend, but they are two years ahead of what most analysts expected," said Jon Peace, banking analyst at Nomura in London.

"It's quite symbolic, especially in a year when other banks are under pressure to cut their dividend right down. The fact they have gone the other way will be remembered by investors."

UBS shares were up 1 percent by 0937 GMT, outperforming a flat European banking sector index .SX7P.

UBS said its investment bank staff would be cut to 16,500 by the end of 2013 and 16,000 by the end of 2016 from 18,000 now, with most job losses achieved by attrition and restructuring rather than redundancies.

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

Banks worldwide are shedding thousands of jobs as new capital requirements aimed at shielding them from future crises compound the impact of a tough trading environment.

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.

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But analysts said this reduction was only marginally more than what the bank had already targeted and noted the bank was not exiting many businesses in its investment bank.

"Shareholders should question why UBS requires 16,000 employees and 150 billion francs RWAs to support private banking clients," said JP Morgan Cazenove analysts in a note.

They said a further scaling back of the bank's fixed income, currencies and commodities business was "inevitable" within the next 12 to 18 months.

Nomura's Peace said the bank had left itself leeway to make further cuts without denting morale.

"The subtext is that this is a conservative number and they can go further, but if they say they are going to decimate the investment bank it could significantly raise employee turnover and execution risk," Peace said.

Some investors had called for much more radical steps at UBS, such as entirely spinning off the investment bank, which almost brought it to its knees after more than $50 billion in writedowns on securities in the financial crisis.

"The risky investment bank and the conservative wealth management business do not belong together," said analysts Oliver Forrer and Martin Koch at private bank Wegelin.

"From the perspective of shareholders, a legal and financial splitting off of the investment bank is the only viable path which will pay in the long term."

JPMorgan analyst Kian Abouhossein even suggested earlier this month that UBS and rival Credit Suisse (CSGN.VX) should focus solely on private banking and pool their investment banks if plans to curb risk-taking fail to appease shareholders.

Earlier this month, Credit Suisse announced it was cutting 1,500 jobs and 50 percent of risk-weighted assets in fixed income by 2014 as it more closely aligns investment and private banking.

($1 = 0.917 Swiss Francs)

(Additional reporting by Rupert Pretterklieber in Zurich, Steve Slater and Sarah White in London; Editing by Will Waterman)