Morning Coffee: UBS implies MD departures might save it money. Expats in Dubai discover the downsides

Usually, in bank mergers, the rule of thumb is that you can save about 40% of the cost base of the smaller bank.  For example, when UBS took over Credit Suisse in 2023, Sergio Ermotti might have looked at its last set of accounts (which turned out to be its last set of accounts), saw that the total expenses were about $18bn, and guessed that a bit more than $7bn would be a reasonable target.  The actual target was set at $8bn, possibly reflecting the fact that this wasn’t an ordinary deal and the overlap was obviously considerable.

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However, a year later it became apparent that this was indeed no ordinary deal. Ermotti therefore raised his target to $13bn.  And now, having achieved $7.5bn of the original target already, he’s being asked how the remaining cuts will be made.

The answer definitely involves job losses; it was always promised that half of the cost savings would come from headcount and half from other areas (mainly switching off the CS technology systems as they were integrated onto the UBS platform).  If we take a ballpark estimate of $250k per employee as the average fully loaded cost, including salary, bonus, taxes and desk cost, then half of $13bn translates to roughly 26,000 staff reductions, compared to an original combined total of 120,000 the day after the merger closed.

Since then, ten thousand employees have gone, which might imply that there are some quite savage redundancy programs yet to come.  But Ermotti seems to be hinting that things might not be quite as bad as you'd think.

As he pointed out in an interview in Davos, in any given year, 7% of UBS’ workforce leave the bank anyway.  That would mean that in an ideal world, fully half of the necessary headcount reductions could be accounted for by a single year’s natural attrition – or, since the cost target is only promised for the end of 2026 and Ermotti always warned that it wouldn’t be “measured in a straight line”, nearly the whole lot.

Of course, that would be far too good to be true.  Somebody leaving the bank voluntarily only counts toward the target if they were scheduled for redundancy anyway, or if they can be replaced by an internal promotion or job move.  This isn’t usually the case, so even though Ermotti was keen to point out that “We have a lot of people going into retirement” and that “we hope we can mitigate” forced job cuts, there are likely to be a few more rounds.

Unless … of course, not all departures are equal.  A managing director earns several multiples of the average salary, so if you get rid of a few of them, it has the same effect on the bottom line as dozens of normal redundancies.  If UBS is expecting a lot of senior bankers to decide that they’ve had their fun, and to make room for ambitious executive directors to step up and demonstrate that they’re worthy of promotion, costs will be easier to cut. It might be a lot less stressful a place to work than you might have expected.

Elsewhere, Dubai is famously a paradise for billionaires and the influencers who impersonate them. But what about the merely well-off – say, bankers, who headed out to the Gulf in the hope of getting a suntan, a tax-free salary and participation in one of the few markets to continue to growth during the 2023 deal drought? Apparently, it’s not as good as it used to be.

The trouble is that when rich people move in, they tend to bid up the price of everything.  And even the incredible speed at which Dubai throws up new buildings hasn’t been able to completely keep pace.  So “normal” expats have been squeezed out to less central and desirable locations.  And for anyone wanting services like education, healthcare and other things you can’t buy at a super luxury mall, the cost of living has increased so far as to all but wipe out the tax advantages.  So we should probably expect (particularly if activity picks up in the core markets) to see some returning colleagues.  They’ll be a few shades more tanned than you remember them, with some spicy Instagram followers, but they might not be all that keen on talking about their bank accounts. 

Meanwhile …

A potential new line of work for the activist defense teams in investment banks – activist investors have started tabling motions and bringing lawsuits against DEI programs. (WSJ)

However, the big banks themselves appear to be no more hospitable to this movement than to any other kind of activism.  Jamie Dimon and David Solomon have both, surprisingly bluntly, stated that they simply don’t agree with the implicit theory that a diverse workforce and a mainstream understanding of the risks of climate change are anything but sensible business decisions. (Bloomberg)

It was the future, once – the Rise fintech incubator and its associated academies, conferences and mentoring events are closing down, as Barclays decides that it no longer needs to be quite so close to the cutting edge. (Finextra)

Not just a matter of league table credit – Hong Kong bankers have been starved of deals for so long that they’re desperate to get into the IPO of battery manufacturer CATL.  And the domestic players are more keen than anyone to show that they’re supporting the Chinese government’s attempts to revive local capital markets.  So CICC and CSC are both alleged to have pitched for leading roles by charging fees of only 0.001%. (FT)

It’s hard to say whether “Robert Bonte-Friedheim” or “Scarlet Macaw Capital” is a more fantastic name, but the former Millennium PM of that name is launching a hedge fund of that name. (Financial News)

“Boomerasking” is not the practice of trying to find out what a VCR is or why the “Save File” icon looks like that; it’s when someone asks what you’re doing at the weekend as an excuse to talk about their own more glamorous plans.  According to slightly oversensitive people, it’s “a big self-centred foul in conversation”. (WSJ)

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