This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Bank Job Cut Stock Pops Rarely Pay Off: Street Whispers

NEW YORK ( TheStreet)-- Radical cost cutting is all the rage in investment banking as reports of massive layoffs at UBS (UBS) and Barclays (BCS) has sparked big rallies in the shares of both companies, but analysts are all over the map in interpreting the implications for the sector.

U.S.-listed shares of UBS jumped nearly 20% in the first five trading days after the Swiss banking giant announced it would shed as many as 10,000 jobs and wind down the bulk of its fixed income trading operations. On Monday, Barclays PLC (BCS) got a 5.81% pop following a Goldman Sachs report predicting it would slash headcount by 15% to 3500, while also reducing a measure known as risk-weighted assets (RWA) by15%.

According to the Goldman report, UBS is targeting a 57% reduction in RWA, Royal Bank of Scotland (RBS) is aiming for a 33% cut to RWA and a 20% headcount reduction , and Deutsche Bank (DB) is targeting an 18% reduction in staffing levels and a 10% RWA drop.

Deutsche Bank's cost-cutting plan, announced in mid-September, also sparked a rally in the shares, lasting a few days and adding 10% to the German bank's market cap. Since then, however, the shares have moved sideways. RBS's cost cutting was announced in January. It also caused a big jump in the shares, though they gave up those gains in May before bouncing back in September.

What all this means so far, other than seemingly short-lived share price pops and out-of-work traders, remains to be seen.

JPMorgan analyst Kian Abouhossein argued in a Nov. 5 report that the revenue opportunities from UBS's pullback would be "immaterial," for competitors--about $1.5-$2 billion annually to be divided among six investment banks Abouhossein considers in the top tier. These include JPMorgan Chase (JPM - Get Report), Bank of America (BAC - Get Report), Citigroup (C - Get Report), Barclays, Deutsche Bank and Goldman Sachs (GS).

As a result, Abouhossein prefers second tier fixed income trading houses Credit Suisse (GS) and Morgan Stanley (MS - Get Report) since he believes they have greater restructuring opportunities. He also continues to like UBS, a stock he has recommended for well over a year for its restructuring potential.

For Abouhossein, however, Deutsche Bank's announced restructuring doesn't rate a mention.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
MS $37.63 0.32%
UBS $20.35 1.10%
BAC $16.25 0.87%
C $53.87 0.20%
JPM $64.29 1.10%

Markets

DOW 18,105.33 +81.27 0.45%
S&P 500 2,117.06 +8.77 0.42%
NASDAQ 5,028.0230 +22.6320 0.45%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs