The fixed income squeeze is putting pressure on all the big investment banks – yesterday, UBS and Barclays reported falling incomes in the bond trading units, following others such as Credit Suisse, JP Morgan and Goldman Sachs.
A decades-long bull market has come to an end, and these money-machines in the investment banks just do not know how to react.
But only UBS has dodged taking a big blow to overall profits from the unit’s woes. Diversification and serious cost-cutting have been key.
In UBS’s case, that meant a major refocusing on private banking.
It is the bank’s historic core, it is what Switzerland is famous for and it is what the bank remains great at.
The other lines like bond trading are superfluous and have turned out badly.
UBS was never a really top player in those parts of investment banking, and has done the sensible thing – slashed it right back.
Other banks need to learn from this fast. Barclays could do the same tomorrow, and is expected to cut all but the best workers.
But UBS is well ahead of the competition, and should reap the rewards for the next year or two before the others either catch up with their reforms, or stick it out until bond market conditions show an improvement.