Bonds

After five years of growth that followed a relaunch of its municipal business, UBS Financial Services cut from its banking ranks this week in the aftermath of a down year for issuance and headwinds for 2023.

The firm slashed 20% of its overall municipal team — which includes banking, sales, trading and underwriting — with the cuts concentrated in the public finance banking group, according to multiple market sources who asked not to be named.

“The U.S. is a key growth market for UBS and we remain committed to our public finance business in the region,” UBS spokeswoman Erica Chase said. The bank declined to provide the total number of layoffs or names of individuals let go.  

One source described the layoffs, which appeared to hit the higher education team hard, as a right-sizing of the group after five years of steady growth.

Multiple sources said they believe the cuts reflect the market’s falling issuance levels that have heightened competition for fewer deals and dug into underwriting spreads as the Federal Reserve began raising interest rates last year to counter inflation. Worries remain this year over the impact of ongoing rate hikes and a potential recession.

“You adjust based on the market” and where “opportunity in the municipal market is for growth,” said one public finance source.

Another market source said some of the layoffs tracked with the expiration of contracts signed with individuals when they were hired. “Volume is down significantly and even the optimistic forecasts are back-loaded for the second half,” the source said.

Total 2022 municipal bond sale volume plunged 21% from 2021 as issuers tapped the brakes on new-money deals and rising interest rates stymied refundings and taxable issuances. The muni market saw $384.086 billion of debt issued in 2022, nearly $100 billion less than 2021’s $483.234 billion, according to data from Refinitiv.

UBS ranked 16th last year among senior managers nationally, leading 73 deals valued at $6.09 billion for a 1.7% market share compared to 15th in 2021 leading 83 deals valued at $6.84 billion for 1.5% of market share, according to Refinitiv. The bank ranked 17th in 2020 and 2019 and 19th in 2018.

UBS joins other firms in trimming its municipal rolls, with still others expected to follow. Some cuts at other investment banks have been part of more sweeping across-the-board trimming to reduce costs amid disappointing revenues. But that’s not the case with UBS layoffs.

The bank’s Chief Executive Officer Ralph Hamers last week said at the World Economic Forum in Davos that while the bank was proceeding with caution on hiring it was still making additions in some critical areas and did not have plans for wide-scale cuts.

UBS exited the municipal negotiated underwriting business in 2008 amid the financial crisis.

In 2017, the Swiss-banking giant revived the originations business amid rising demand for municipal securities and a rebuilding began. A steady stream of high-profile hirers gave the firm a roster of veteran bankers in the general government, higher education, healthcare, transportation and other sectors with boots on the ground in key markets across the country, including New York City, Illinois, Texas, and California.

Veteran public finance manager Peter Hill who had built up banking teams at other major firms led the effort. He departed in October.  UBS named Steve Genyk, head of middle markets, to lead the public finance team on an interim basis, in addition to his existing responsibilities, and he continues to serve in that role, the bank said.

The cuts did not appear related to Hill’s departure and no additional ones were expected beyond the ones earlier in the week, according to one source.

The cuts included high-profile, longtime bankers including Sandra Kim, a managing director who was based in California and led the higher education team; Lisa Rogers, co-head of healthcare; and Mark Liff, in the higher ed group, according to multiple sources. A quantitative specialist in the group was among the departures. 

The firm ranked 15th last year among senior managers on higher education borrowing leading seven deals valued at $326 million for a 1.4% market share. A source said the firm was maintaining a higher education practice and some bankers that specialize in the sector remain. COVID-19 hit the sector hard with campuses moving to remote learning and enrollment struggles and it remains in recovery mode.

Kim joined the firm early in the revival from the University of California where she managed the school’s debt capital market activities and capital programs after holding several banking positions. Rogers joined the New York office in 2018 as co-head of healthcare following stints at JPMorgan, Goldman Sachs, and Moody’s Investors Service. UBS hired New York-based Liff in 2019. He had previously worked in JPMorgan’s banking group.

No cuts were made in the Illinois and Texas offices, according to multiple sources. The bank was shut out of Texas business last year after the state comptroller placed it on a list of financial companies whose boycott positions on the fossil fuel industry run afoul of a 2021 law aimed at protecting the state’s oil and natural gas businesses. UBS, the only underwriter on the list, has said it disagrees with its inclusion on the list and is working to resolve the issue.

One banking source said when firms are looking to pare down their ranks to reduce costs they often look at the specialty sectors where a firm is not among the top ranked and a big revenue producer or in regions of the countries. “I think if you are specialty banker in a sector where issuance is depressed and your firm is not among the higher ranked you are vulnerable” with higher compensated senior bankers most at risk despite client relationships, the source said.

The banking source said the expectation is a wave of cuts are coming from other firms as they finalize bonus compensation for last year’s performance and consider the year ahead with the potential for further moves later in the year. “Firms will reassess around mid-year” based on issuance and performance, the source said.

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