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Six significant takeaways from Andrea Orcel at the UBS Libor hearing

More grey hairs wanted

More grey hairs wanted

Today was the day that Andrea Orcel, the perma-tanned head of the investment bank at UBS, appeared before the Parliamentary Commission of Banking Standards to explain what went wrong at UBS and how it happened that the Swiss bank became so severely implicated in Libor wrongdoings. For those of you on Twitter, we were intermittently Tweeting the event. For those of you not on Twitter, these were the big moments that you missed.

1. Andrea Orcel takes exception to the notion that he is a ‘deal junkie’

Despite being one of the bankers advising RBS to buy ABN AMRO and despite now acknowledging that maybe this was a bit of a bad call, Andrea Orcel does not want to be referred to as a ‘deal junkie.’

Far from it, said Orcel after being addressed with this moniker by British MPs today. Most of his clients are very long term clients who like working with him precisely because he’s not a deal junkie, Orcel insisted: more often than not, he recommends that a deal should not go ahead.

Separately, Orcel was referred to as the Ronaldo of banking. He appeared to take less exception to this.

2. Andrea Orcel is using the Libor scandal as the catalyst for completely reshaping UBS as an advisory firm

As you will probably know, UBS is in the process of reshaping its fixed income business and will be making 10,000 redundancies over the next three years, mostly from fixed income.

UBS’s fixed income bankers have colleagues who were involved in the Libor scandal to thank for this. Orcel explained that the scandal inspired him to restructure the bank. When the Libor malfeasances became apparent, Orcel said he looked at UBS’s “DNA” and decided the culture at the bank was based upon advice and client service. Hence the hollowing out of the fixed income unit. You could possibly argue that this was self-serving given that Orcel is himself an advisory banker.

3. Andrea Orcel has a five year plan 

As we mentioned earlier, Orcel laid much of the blame for the Libor scandal on the rapid growth in UBS’s fixed income business and the associated rush of external hiring. The bank “sprawled very quickly” and this made it difficult to maintain a unified culture, said Orcel (who joined from Merrill Lynch in 2012).

Nevertheless, Orcel said he has every intention of continuing to hire externally for UBS in the future. UBS has a five year growth plan, he added. All newly hired bankers will be given a chance to bed down and be thoroughly imbued with the UBS advisory ethos.

4. Andrea Orcel thinks all this emphasis on control functions in investment banks is very wrong 

Investment banks have become used to dichotomizing between the front office and the control function, said Orcel. This is wrong and encourages front office bankers to “pitch” their ideas to control staff, he said. In doing so, front office bankers delegate all responsibility for their actions to the control teams. Actually, front office bankers should be taking full responsibility themselves.

5. UBS bankers pretend to be whistleblowers in order to strengthen their hand at employment tribunals 

This came, not from Andrea Orcel but from his colleague Andrew Williams, who is UBS’s global head of compliance. UBS receives around 25 calls per quarter to its internal whistleblowing hotline, said Williams. However, many of these are not genuine whistleblowers but involve UBS employees who are caught up in employment disputes, said Williams. If a whistleblower is unfairly dismissed in the UK, the compensation awarded as a result is uncapped, creating a significant incentive to cry wolf.

6. Andrea Orcel said UBS has altered the way it allocates bonuses 

UBS defers bonuses for the executive board for up to five years and bonuses for everyone else over three years. Orcel said it’s a market leader as a result of this, although this is a questionable claim given that Deutsche has gone one step further and introduced five year cliff vesting for all its MDs.

More notably – and also in common with most other banks – Orcel said UBS now awards bonuses based upon economic profit that takes risk into consideration.  “If as a trader I use a lot of UBS capital, I need to make more money to cover that. That money cannot come from taking more risk,” he said.

 

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