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The unsafe places at UBS, BNP Paribas and HSBC

UBS, BNP Paribas, HSBC

Compliance jobs are less safe than they used to be

The first quarter is not going well for investment banks. In case there were any doubt of this, you only need to look at the presentation slides accompanying BNP Paribas’ Q1 presentation today: ‘Very challenging market environment in Europe this quarter’, they say in big letters beneath the section on the corporate and investment bank (CIB), and then, ‘Weak business level this quarter,’ just to clarify things further.

Accordingly, corporate and investment banking revenues fell 19% year-on-year at BNP Paribas in the first quarter. Nor were things any better at UBS and HSBC, which also reported today. Investment banking revenues at UBS fell 29% year-on-year. Global banking and markets revenues at HSBC fell by a more moderate 12% – but fell all the same.

Investment banking and markets jobs at BNP and UBS look the most precarious now

As a proportion of revenues, costs are creeping up at all three banks. However, they’re creeping up most of all at BNP Paribas and UBS, where they’re now 84% and 87% of revenues in the investment banking units respectively.

Worse, the rising cost base at UBS’s investment bank came despite heavy cuts to pay. Pay per head at UBS’s investment bank fell 26% from CHF191k (£137k/$201k) in the first quarter of 2015, to CHF140k in the first quarter of 2016. This drop was so dramatic that analysts on today’s call were prompted to question whether UBS had done away with its bonus pool entirely. CEO Sergio Ermotti said the bank hadn’t, but UBS needs to do something to get costs in the investment bank back within its target range of 70-80%

London-based jobs at UBS look shaky 

If you work for UBS’s investment bank in London, you have reason to feel afraid. As the chart below shows, UBS’s EMEA-based investment banking business – which primarily operates out of London – is not profitable. Costs in the region accounted for 100% of revenues in the first quarter, compared to just 50% in Switzerland.

UBS plans to cut CHF2.1bn ($2.2bn) from the group cost base by 2017. As of the first quarter, it had only cut CHF1.2bn. During today’s call, Ermotti said the group is, “focused on cost not headcount,” but that UBS is “progressively moving headcount out of high cost locations to service centres.”

London is a high cost location and UBS urgently needs to cut investment banking costs in EMEA. If you work for UBS’s investment bank in London and are doing a job that could be moved to Hungary, your days are numbered. If you work for UBS’s investment bank in Switzerland, you are fine.

Compliance jobs are precarious at UBS, but not at BNP Paribas – yet

Financial News reports today that banks are cutting compliance jobs. UBS would seem to be a case in point. As the Swiss bank struggles with its cost base, regulatory costs are being heavily pruned.

UBS didn’t break out regulatory expenses in the investment bank in the first quarter. However, it did break out regulatory expenses for previous full years. As the chart below shows, UBS’s combined spending on establishing regulatory programs and their ongoing running costs, tripled between 2013 and 2015 to CHF1.2bn.

UBS said it added regulatory headcount in the first three months of 2016. In future, however, it expects regulatory costs to fall. Regulatory program costs at UBS should fall away and regulatory running costs should stabilize at an additional CHF200m per annum. If so, a big cut in regulatory spending at UBS is coming soon.

By comparison, BNP Paribas is still spending big on regulation. The French bank said today that staffing in its compliance and control function is up by 2,800 people compared to the first quarter of 2015. For the moment, BNP will be cutting an additional €300m ($348m) of costs across the group to compensate for this increased regulatory spend. Longer term, it’s likely to follow UBS in trying to bring regulatory costs down.

Rates traders look secure. Credit traders do not – except at BNP Paribas

Rates traders at HSBC proved their mettle once again in the past quarter. While rates businesses elsewhere struggled, HSBC’s rates traders increased revenues by 21%. Credit revenues, however, declined by 37% year-on-year at HSBC.

UBS doesn’t break out fixed income trading revenues by business, but combined revenues (rates, credit and FX) in its fixed income business were down 33% in the first quarter. BNP Paribas’ fixed income business did well by comparison: revenues fell a mere 14% and the bank cited good performance in credit and rates trading as a contributor.

Equities traders need to gird their loins – especially at BNP and HSBC

If equities traders thought they were safe, they were wrong. Bank of America, Citi and Nomura are already cutting equities sales and trading professionals. BNP Paribas and HSBC are surely not far behind. Equities and prime services revenues at BNP Paribas declined 41% in the first quarter – more than fixed income revenues. At HSBC they declined 34%.

Equities traders at UBS got off comparatively lightly – with a 20% decline, although headhunters say the bank is preparing job cuts anyway. 

UBS’s M&A bankers don’t look too hot, despite all that hiring 

Finally, UBS’s investment banking division doesn’t look too great – despite considerable efforts to strengthen it by Andrea Orcel, CEO of the investment bank and an M&A banker by trade.

Between the first quarters of 2015 and 2016, revenues in UBS’s M&A business declined by 50%. In Morgan Stanley’s M&A business they increased by 25%. The discrepancy might be attributed to the more favourable climate for doing deals in the US – except that Deutsche Bank’s M&A bankers achieved a 4% increase in revenues in Q1. Maybe it’s time for UBS to upgrade its M&A bankers all over again?

Photo credit: precarious by Hsing Wei is licensed under CC BY 2.0.

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