UBS revamp after sub-prime losses

“Swiss Investment Bank UBS plans to shrink its investment banking business ...”

"I know that 2007 was a year that challenged and tested us all individually and collectively," UBS CEO Mr Rohner said.After huge losses caused by exposure to problems in the US sub-prime housing market. UBS makes further job cuts and scale back on its more-risky strategies, Marcel Rohner outlined in today's internal memo.
UBS has written off about $14bn (£7.1bn) in debts linked to sub-prime loans and has warned of further losses. The dramatic plans to streamline operations at UBS centre on the division responsible for its distressed mortgage-backed investments.

These holdings will be gradually wound up, as the no longer attractive sector they invested in has suffered badly.

Staffing levels in the division will significantly reduce, and the amount of capital the bank commits to that area of business will also shrink by two-thirds.

In an internal memo, seen by the BBC, Mr Rohner also said he wanted UBS to focus on its clients rather than on using the bank's capital to boost its profits.

Bond and currency trading business will also be restructured to cut costs and transfer capital to more profitable areas.

Tough times

The changes come as UBS struggles to better position itself after becoming one of the worst victims of the global credit squeeze.

Last July the firm layed off 1,500 jobs, sacked its chief exec Peter Wuffli and replaced him with his deputy Marcel Rohner. Like many of its troubled peers, UBS has turned to wealthy state-backed funds in the Middle and Far East for financial support.

Singapore's investment arm has bought shares in the bank for almost $10bn, while an unnamed Middle Eastern investor, thought to be the Oman government, has also taken a stake.

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Is the credit crunch finally over?

“So is the crisis over, or are there still some big problems remaining?”

Bad Debt data embedded in complex systems ... the chaos began to unravel in 2007 for pension funds and hedge funds businesses and continues to create a storm of destruction in its path

WHERE'S THE BAD DEBT?

The crisis began when US mortgage companies made hundreds of billions of dollars of inappropriate loans to individuals with poor credit histories.

These debts were then packaged up and sold to financial institutions around the world, who then sold it on to pension funds and hedge funds.

We still don't know where these bad debts are concealed in the financial system.

And until we do, banks will still be reluctant to lend to each other, and investors will be suspicious of the health of the financial sector.

UNFREEZING THE CREDIT CRUNCH

The reluctance by banks and other financial institutions to lend money, because they are not sure how risky it might be, is gumming up the financial system.

Despite the injection of hundreds of billions of dollars and euros, interest rates on inter-bank lending are still unusually high. And banks are tightening up on their lending to individuals and companies, restricting the amount of lending as well as making loans more expensive.

There are also hundreds of billions of dollars worth of short-term debt obligations that will fall due in the next six months, which could further depress the market if no buyers can be found for them.

WILL THE HOUSING MARKET CRASH?

The overhang of bad mortgages is depressing the US housing market. Thousands of people are having their homes repossessed, and with a glut of homes on the market prices are dropping.

Mortgage companies are finding it difficult to raise money even to lend to sound borrowers. So despite a pledge by the US government to help, house building is at a record low.

Although there are far fewer sub-prime mortgages in the UK, mortgage lenders like Northern Rock are also finding it difficult to raise the cash to pay for additional mortgage lending. So it could become harder to get a mortgage, and it could cost more - and both these expectations are lowering house price inflation.

WILL THERE BE A WORLD RECESSION?

A big slowdown in the housing market could have serious economic consequences.

Construction is a big part of the economy, and people who move house are also more likely to buy consumer goods like washing machines. The tightening up of credit and worries about mortgage repayments may make everyone more nervous about borrowing money to buy big-ticket items like cars.

There are already signs of an economic slowdown in the US, the world's biggest economy. And if it deepens, it could dampen down the economic recovery underway in Europe and Japan. The UK, as a major exporting nation, would also be affected.

WILL THE DOLLAR PLUMMET?

The effect on the rest of the world economy could be worse if the US dollar begins to fall in value.

The dollar is already weak because of the huge trade deficit the US runs with the rest of the world - nearly $1 trillion - which has been a big boost to the world economy. But if the US economy slows, and interest rates are cut sharply, the dollar will become a less attractive currency and could fall further.

This in turn would make imports into the US more expensive, and make it harder for exporters like Britain to win orders. A big decline could also force countries like China, which hold $1.3 trillion in currency reserves, mainly in dollars, to diversify their holdings, further depressing the greenback.

WHO'S TO BLAME?

Politicians and financial institutions are trading accusations about who is to blame for the crisis.

In the UK, the governor of the Bank of England is under fire for not intervening earlier to prevent the Northern Rock crisis from getting out of hand.

In the US, the central bank, the Federal Reserve, is under fire in Congress for not regulating sub-prime mortgage lending properly.

And both bankers and politicians have blamed the credit rating agencies for certifying as safe many of the bad debts which had been bundled up and sold. There is a growing move to tighten up international regulation of the financial sector - but worries about whether this can be done without inhibiting financial innovation.

IS THERE A SILVER LINING?

Many economists believe that the crisis is also an opportunity for rebalancing the economy, which has become overly dependent on consumer spending financed by cheap credit and government borrowing.

An increase in household savings, encouraged by higher interest rates for savers, could lead to more long-term investment.

And a mild economic slowdown in the US, coupled with a gradual reduction in the value of the dollar, could help rebalance the world economy, which has become overly dependent on the US as the engine of world economic growth.

Source: BBC September 2007

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Wall Street's highest-paid female executive

“Zoe Cruz ex Co-President of Morgan Stanley ousted three weeks after the firm disclosed $3.7 billion of losses on mortgage-related securities”

Zoe Cruz born and raised in Greece, solidified her position as a powerhouse on Wall Street, she started in investment banking, joined Morgan Stanley in 1982 as a foreign exchange trader and became head of fixed income trading by 2000. Known as the "cruise missile" for her combative style in business.

2007 Fortune 1 of 50 Most Powerful Women rank: #16
2007 Fortune 1 of 6 female CEOs-to-be
2006 Fortune #1 Highest Paid Female - Total compensation: $30 million

Cruz counsels young people not to plan their careers ... "When you don't plan, things are easier," she says. "You focus on doing a great job."

Zoe Cruz, 52, a 24-year veteran of the Morgan Stanley, was viewed by analysts as a leading candidate to succeed Chief Executive Officer John Mack. Her departure adds to the list of banking executives who have lost their jobs amid more than $50 billion of credit losses tied to subprime home loans.

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Overcoming Layoffs

“Bear Stearns expects to take $1.2bn in write-downs, and is set to layoff 650 to cut costs due to the sub-prime crisis”

Bear Stearns reported today in e-financials 29 Nov 2007, it expects to cut (4% of its global workforce) to reduce costs. 20 job losses in London. Chief Executive James Cayne announced ... “As we indicated at the end of last month, we are continuing to rationalise our business, monitor staffing needs and align our infrastructure with current market conditions,” Bear said. It said that it will make strategic hires in growth area

Overcoming Layoffs, how to survive

One of the most difficult tasks as a manager is making layoffs. Those involved in downsizing are often left with feelings of survivor’s guilt, wondering why their jobs were retained while star performers or rising IT executives were let go.
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Layoffs are likely to bring fear and uncertainty to those left behind, meaning you and your remaining staff. Those employees who retained their positions may be doing two jobs, working extra hours, adjusting to the new culture and feeling badly for those who didn’t survive the organizational change ...

“While much emphasis is put on the pain of those who lose their jobs, those remaining experience a wave of emotions,” says Julie McClatchey of Employee & Family Resources (EFR), a company that administers employee assistance programs. “It’s typical to feel both relief and guilt.”

Here are some tips to help you navigate workplace change and help your employees:

* Stay connected. Talk to family, friends and co-workers. Seek professional counseling if needed.

* Practice healthy coping behaviors. Overeating, oversleeping and excessive use of alcohol only provide temporary release, not solutions. Instead try to maintain your usual routine, exercise and get enough sleep.

* Recognize change is inevitable and view it as an opportunity to learn new skills or adapt your career.

* Give the reorganized workplace a chance, but prepare to leave if the new situation isn’t working and the company’s outlook doesn’t improve. And of course, keep your resume updated and network for opportunities.

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Sub-prime mortgage meltdown hits Citigroup

“Citigroup names Robert Rubin as chairman after Charles Prince exits”

Citigroup has appointed Robert Rubin, the former Treasury Secretary, to be its chairman and Sir Win Bischoff, the group’s European head, to act as interim chief executive, as it emerged that the world’s largest bank would need to take up to $11 billion (£5.3 billion) of further writedowns relating to America’s sub-prime mortgage meltdown. The appointments came after the position of Charles “Chuck” Prince, Citigroup’s chairman and chief executive, became untenable in the wake of huge mortgage-related writedowns in the third quarter and expectations of billions of dollars more to come.
Mr Prince, whose resignation was characterised as a retirement, said: “It is my judgment that, given the size of the recent losses in our mortgage-backed securities business, the only honourable course for me to take as chief executive officer is to step down.”

The sheer scale of the additional losses from sub-prime-related investments, which Citigroup last night estimated at between $8 billion and $11 billion, will send shockwaves across the banking industry

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