ZURICH -- UBS axed 5,500 jobs and sold billions of dollars of ailing assets on Tuesday in a bid to break free from the subprime crisis, but its shares dropped as investors feared its earning power might be permanently stunted.
The Swiss bank said it would reduce its workforce by an additional 7 percent, with most of the cuts hitting U.S. and UK investment banking, as it sought to hack back the business lines that made it Europe's biggest casualty of the subprime crisis.
"In terms of large-scale reductions, I do not forsee anything (but) you will never have certainty that we are done," Finance Chief Marco Suter told Reuters. "In the investment bank, that's just the name of the game: hire and fire."
UBS unveiled a preliminary deal with U.S. asset manager BlackRock Inc to sell for $15 billion a portfolio of subprime mortgages with a face value of $22 billion.
The bank said the sale was a signal the market for ailing U.S. real-estate loans is recovering.
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But shares in the world's largest wealth manager fell as much as 5 percent as investors worried the crisis had ravaged UBS earnings power, shown by a sharp slowdown in new money entrusted to it by its large base of rich clients.
The latest 5,500 staff cuts come on top of 1,500 already completed and likely represent the second-biggest purge among global investment banks after Citigroup which looks set to slash around 15,000 positions.
Chief Executive Marcel Rohner said the BlackRock deal showed light at the end of the tunnel in the market for risky U.S. mortgage assets.
But UBS cautioned that conditions in financial markets were still tough, and it declined to offer any results forecast. The group said it did not need to raise more capital beyond existing measures that total around 39 billion Swiss francs.
"The same is true for UBS as for the entire sector: The worst is likely over," said analysts at bank Wegelin.
"However, there is little momentum for the future. Even if the job cuts are able to lower costs, the current outlook is anything but rosy."
UBS reported a first-quarter loss of 11.535 billion Swiss francs ($10.9 billion), slightly better than it had announced in April and less than the 11.9 billion analysts expected.
There were signs that the crisis was worrying wealthy clientele.
The bank saw net inflows in its two wealth-management businesses of 5.6 billion francs in the quarter — a sharp decline.
"Wealth management had a tiny inflow, while in many previous quarters this was comfortably above 30 billion francs," said Dirk Becker, an analyst with Kepler Equities, echoing the concerns of others. "This is an alarming trend."
UBS shares were down 4.83 percent to 35.10 francs at 4:28 a.m. EDT, leading a decline in the Dow Jones European banking stocks index, which was down 1 percent at the same time.
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UBS staff are among the first to feel the severe pinch of the credit crisis and many of those made redundant will enter a difficult jobs market.
Other casualties of the global markets crunch such as Citigroup are also making deep staff cuts. Even rivals which have escaped lightly, such as Goldman Sachs, want to slash headcount.
The UBS cuts mark a dramatic departure from only a year ago, when UBS still aimed to hold ranks with the world's largest investment banks.
UBS's new investment banking head, Jerker Johannson, said the layoffs would target weaker businesses, with some areas being cut by 50 percent and others, such as the municipal bonds unit, being sold or closed down.
It is aiming to make a pretax profit at the investment bank of 4 billion francs when markets return to normal, compared to 5.5 billion earned in the unit in 2006.
UBS is Europe's biggest casualty of the subprime crisis after posting over $37 billion in writedowns.
Having already swept out senior management, Tuesday's announcement marks the largest effort yet by the bank to reshape itself and face a downturn in the investment banking sector.
Analysts expect it to make a net loss of over 5 billion Swiss francs this year.
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