UBS cuts bonuses as it rebuilds reputation
Published 08/02/2012 | 05:00
UBS may pacify its Swiss audience, irked by big banking rewards, by announcing steep cuts to its bonus pool, but the bank is still struggling to keep a lid on its overall pay bill as high salaries weigh and it tries to retain key staff.
The Swiss bank, hit in 2011 by a rogue trading scandal and still clawing its way back from a financial crisis bailout, is slashing 2011 investment bank bonuses by 60pc, a steeper drop than most rivals.
Anger over high banker pay at a time of economic crisis across Europe remains a highly charged political issue.
The boss of Britain's state-controlled RBS, Fred Goodwin, gave up his knighthood last week following public outrage at his planned payout, and UBS revealed in its fourth quarter results that investment bank boss Carsten Kengeter had given up his award for last year.
But the big cuts to bonuses have had only a modest impact on the overall pay levels in Mr Kengeter's division. Combining salaries, bonuses and deferred awards from other years, pay fell by 14pc in 2011 to CHF5.8bn (€4.8bn).
Operating income in the division, even when excluding items such as the $2bn rogue trading losses, fell 24pc.
On the surface, UBS's move on bonuses across the group is far more drastic than most. Bonuses fell 40pc, whereas at Germany's Deutsche Bank, which reported lacklustre fourth quarter results last week, the payout pot was down 17pc.
However, UBS's investment bank pay bill is almost as big at Deustche Bank's, and although its 17,256-strong division has about 2,000 more staff, it raked in over $10bn less in revenues than its German rival's division last year.
Few had expected anything other than a big drop in payouts at UBS after the bank embarked on a plan to shrink its investment bank, and following two rough quarters for stock and bond trading.
"They are making a virtue out of necessity here," said Matthew Czepliewicz, analyst at Collins Stewart.
As the bank loses market share in key markets, partly as a result of its shrinking plans, UBS's Mr Kengeter now faces the tough task of trying to retain key staff to improve revenues and see the plan through, while juggling costs.
Mr Kengeter waiving his own bonus in the wake of the $2bn rogue trading losses may go some way towards motivating employees. UBS has also set aside CHF300m in special awards to be handed out in 2012.
"The special plan awards are focused on those who want to stay with UBS," Tom Naratil, the bank's chief financial officer, said, adding that top management would not be entitled to the awards.
Those that may benefit include bankers advising on merger and acquisition deals, foreign exchange traders, cash equities staff and bankers specialising in leveraged loans.
But UBS also warned yesterday it was facing a weak first quarter in investment banking, putting more pressure on it to cut pay where it can if revenues do not pick up.
It will be able to save on costs from deferral awards in 2012, it said, with CHF500m less due to come through than in 2011. It estimated its bill from deferred awards this year would be CHF1.1bn. (Reuters)