UBS is to cut 7 per cent of its workforce, or 5,500 jobs, as it struggles to deal with the impact of the global credit crunch.

The Swiss banking giant said this morning that conditions in financial markets “remain difficult” as it unveiled an SwFr11.55 billion (£5.55 billion) first quarter loss, compared with a net profit of just over SwFr3 billion (£1.44 billion) in the first quarter of 2007.

UBS also confirmed that it is to sell $20 billion worth of sub-prime debt to the fund manager Blackrock.

The mortgage debt, which is being sold for $15 billion or a 25 per cent discount, will be placed in a new BlackRock fund and marketed to investors.

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Analysts have interpreted the sale as an encouraging sign that the troubled market for US sub-prime debt is starting to improve.

UBS, which has suffered more than any other European bank from the meltdown in the US sub-prime mortgage market after reporting $37 billion (£18.8 billion) in writedowns, said that the cuts would include compulsory redundancies and natural attrition and would be complete by mid-2009.

It said that 2,600 of the job cuts would be in its investment banking unit, which employs 19,000 people but which has been hit by a “40 per cent contraction in global deal volume” during the first quarter.

Today’s announcement represents the most ambitious effort to date made by UBS to face up to the downturn and rebuild its balance sheet.

Marcel Rohner, the chief executive, claimed that the bank’s actions at rebuilding the group’s capital base were proving effective.

“We can see tangible effects as a result of our initial responses to the losses,” he said.

Mr Rohner told journalists: “We see clearly that there are sophisticated investors coming into this market, and this itself we view as strong support.”

However, the bank cautioned that conditions were likely to remain tough.

The bank said in a statement: “UBS expects financial industry conditions to remain difficult with a continuing unfavourable global economic climate, deleveraging by institutional and private investors, slower wealth creation and lower trading and capital markets activity. This will require UBS to manage costs, resources and capacity very effectively.”

The bank also reported net inflows into its two wealth management businesses of SwFr5.6 billion (£2.7 billion).

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