Swiss bank (UBS) results and why these affect you (pt2)

After my post this morning, I have been following up on the news that UBS, Switzerland’s largest bank is to cut its global workforce by 10,000. If you read my last post, I tried to explain why I think that is bad news for all of us, not just the Swiss.

I won’t get into the argument here about ‘greedy bankers’ and the rights and wrongs of government bank bailouts. More than enough has been said already about that.

However here’s a Euro News report today with more on this story.

UBS blazes lone banking trail | euronews, behind markets

What interested me was that the news about UBS job losses (not to mention the £1.43bn losses in the 3^rd quarter) resulted in a massive boost in the UBS share price. Shares in the bank closed up more than 7% in Zürich, the highest riser on a falling SMI.

Apparently, the idea is to reorient the bank around its core activities, which internationally means wealth management that reaps double-digit returns. In other words, selling more stuff to the super rich.

Now I should point out I am not an outright bank hater. In fact I have worked for several of the world’s largest banks - although I left the sector in 2004 and alot of 'very bad things' have happened since then.

That said I am seriously troubled by this news. I am also astonished that banks continue to pay huge bonuses in their investment banking businesses. In my view, the traditional arguement that you need to pay big bucks to get the best talent simply doesn't hold water in today's economic situation. Even if this argument did stack up, the fact is that the banks have lost the trust of the public.More than ever, they need to rebuild this trust if they are to have sustainable businesses in future.

But back to UBS. In essence, the only winners here are the investors. The losers are everyone else including a large number of highly paid investment banking staff. These folk will find it very tough to get new jobs (which depending on your view about the banks' behaviour and culpability, you may or may not care about).

If an office full of investment bankers shuts down, there are a huge number of other people who risk losing their jobs too - staff in the local restaurants and shops, right through to the German car worker, the Italian hotelier and the Japanese TV manufacturer.

But what really worries me here is that these developments are increasing wealth inequality.

Many studies have proven that it isn’t absolute wealth or poverty which creates social tension and misery, it is the relative levels, i.e. the size of the inequality between the richest and the poorest in any society.

Just about the only people who will benefit from this news are the super rich, who have just become richer.The small investor who has a few hundred or even a few thousand UBS shares won’t really be affected by this. But if you hold say a few million UBS shares, you’ve just had a great day (assuming all you care about is yourself).

So I hope you can see how this news means we are increasing wealth inequality further.

Whilst the super rich just got richer, everyone else, from the waitress at the restaurant, to the car worker in Germany to the very highly paid investment bankers and their staff, just got a whole lot poorer. Whilst that is bad news in itself, the wealth gap just got bigger too and the global economy took yet another knock back.