Just out of curiosity, when Swiss banks talk about downsizing investment banking activities do they primarily refer to the sales and trading arms of the investment bank or does this extend to the services/advisory segment as well (M&A)?Also, historically, why have the Swiss not been successful in that aspect of banking/ignored developing IB arms?
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To answer the second part first, the Swiss have historically focused on IB. Both UBS and CS built out powerhouse IB practices through acquisitions, and pre-GFC UBS and CS had among the two most respected IB divisions out there. Just look at how many of today's top names in IB worked at UBS or CS. However, those acquisitions also arguably laid the groundwork for the downfall of the Swiss banks. The first issue was culture; historically, top management at the two large Swiss banks have been relatively conservative and risk-adverse, and the acquisitions made by UBS and CS (especially CS) were of firms that largely embraced risk in chasing profits that often brought the American-led IB sides and the suits in Zurich to conflict. Whereas at UBS, calls came to start downsizing IB in favor of its core PWM operations came as soon as the mid-2000s, under John Mack CS focused more and more on its IB division. While UBS took a hard hit from the GFC, UBS has reigned in its IB division's risk-taking culture substantially over the past decade in favor of focusing on its businesses, the DLJ and First Boston influence among CS's ranks has led to a substantially less conservative culture.
Another consequence of the Swiss banks' forays into IB is a loss in reputation for Swiss banking secrecy. With all the acquisitions made to bolster presence in the US (and especially with UBS's takeover of PaineWebber), the integration of onshore and offshore businesses provided US authorities with substantially more influence to crack down on Swiss banking secrecy through tax evasions and sanctions enforcement means, and substantially hurt the PWM reputations of both banks by forcing the banks to comply more with US laws and send confidential client information to the US.
To answer the first part of your question, all of IBD will likely be downsized, but the S&T arm will likely face the brunt of downsizing. There's still synergies to be had with advisory (UBS has maintained a sizeable advisory presence while downsizing financing and S&T-related activities as the firm uses its advisory business to be augment its offerings and be a one-stop-shop for UHNW clients and their companies). That being said, considering how much overlap in client coverage the advisory segment faces and the likely reduction in auxiliary services that also boost advisory deal flow (the rest of IB), advisory will still likely face substantial cuts.
Makes sense. Do you think advisory cuts will come from higher ups or junior positions? Are intern cuts also fair game?
Unfortunately, juniors will face more of the cuts. They are less valuable and are in greater numbers. Banks have a continuous talent pipeline for junior talent and cutting senior bankers and bringing in Analysts or Associates wont be contributing to UBS' revenue. Most of the industry wide layoffs we have seen over the past 6 months have impacted more juniors than seniors. I expect this to remain true, especially in a forced merger of two similar banks.
Do you see the possibility of intern and ft offers being rescinded as soon as before this summer?
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