Shares in UBS jumped more than 5 percent on Monday after media reports that the Swiss bank will announce cuts of up to 10,000 jobs and split off of its fixed-income operations into a separate division to be ultimately wound down.
UBS Chief Executive Sergio Ermotti is expected to announce the radical restructuring along with third-quarter earnings on Tuesday, but news of the plans started leaking late on Friday evening.
"The changes being discussed in the media, if true, would represent a transformational change for UBS," said analysts at Espirito Santo Investment Bank in a note to clients.
"It is not just a additional cost cutting exercise at the margin, but a strategy that would enable the bank to return much more capital to shareholders and/or significantly increase the capital ratios."
Shares rose 5.2 percent to 12.87 francs by 8.33 a.m. British Time - their highest level since March - compared with 0.2 percent weaker European banking index.
The expected cuts will add to the tens of thousands of jobs the financial sector has shed globally since the financial crisis of 2008.
"If UBS does take radical action, we would expect this to kick off further industry restructuring," Citi analysts said.
A source familiar with the matter told Reuters on Friday Switzerland's biggest bank is expected to make the cuts across the firm globally, but the bulk of the losses are likely to occur in its hard-hit trading and investment banking areas.
The cuts at UBS, which employed 63,520 staff at the end of June, are expected to come on top of the 3,500 jobs losses it announced last year.
The moves are being engineered by Ermotti, the 52-year-old chief executive who took the top job just 13 months ago after his predecessor Oswald Gruebel stepped down over a trading scandal involving $2.3 billion of losses.
Ermotti had already announced a shift in focus towards the bank's core private banking business serving wealthy clients and away from the investment banking unit which ran up $50 billion in subprime losses, forcing a Swiss government bailout in 2008.
CUTS "WON'T BE DONE OVERNIGHT"
The Financial Times, which was the first to report the radical move, on Monday cited insiders as saying the shrinking of the investment bank would take three years and trigger job losses in London, Zurich and the United States.
The fixed-income operations are expected to be split off into a separate unit to be wound down over time, to be led by Carsten Kengeter, a co-head of the investment bank.
Kepler analyst Dirk Becker said the task would be difficult and complex, noting the investment bank still employs over 16,000 people and runs a balance sheet of over 900 billion Swiss francs ($962.3 billion).
"This will not be done overnight," Becker said in a note. "We believe it will cost several billions of francs in exit losses, restructuring charges and realignments for this to get to the desired size."
($1 = 0.9353 Swiss francs)
(Reporting by Emma Thomasson; Editing by Erica Billingham)