The European debt crisis dragged down investment banking profits at UBS and Deutsche Bank in the second quarter, forcing the Swiss bank to announce drastic cost cuts that will include significant job losses over the next three years and to scale back its longer-term profit expectations.
UBS announced plans to cut annual costs by as much as Sfr2bn (£1.5bn) to conserve cash after pre-tax profits at its investment banking division dived by 71 per cent in the second quarter, compared with the previous three months.
Overall, the group's pre-tax profit fell by 29 per cent to Sfr1.7bn over the period, as the increasing popularity of the Swiss franc as a safe haven pushed up its value, decreasing the contribution of overseas revenues when converted into the bank's home currency.
UBS's disappointing investment banking performance came as Deutsche Bank revealed that corporate banking and securities revenues fell by 32 per cent in the second quarter – dragged down by a €155m (£137m) write-down on Greek sovereign bonds – fuelling concerns that UK banks may deliver weak profits on their trading activities next week.
Jon Peace, an analyst at Nomura, said: "Deutsche and UBS have been hit by sovereign debt volatility in Europe and the US, which has weakened the trading environment, in the form of subdued client activity and lower prop trading.
"What we have seen today with the banks in Europe has implications for some of the UK banks because they operate in a global market. Barclays in particular and, to a lesser extent, RBS, are likely to report similar top-line pressure for the second quarter next week," Mr Peace added.
UBS declined to give more detail on its cost-cutting programme, but Tom Naratil, the bank's finance director, admitted the cuts would be made "across all categories and divisions and will affect head count".
Oswald Grübel, UBS's chief executive, conceded trading conditions were likely to remain very tough as he confirmed the group would scale back its medium-term pre-tax profit target of Sfr15bn by 2014.
Although Deutsche reported a significant decline in its corporate banking and securities unit, stronger performances in its other divisions helped the group to report a 3.3 per cent rise in net income to €1.2bn.Reuse content