After all the waiting, the worst seems to have come to pass. Still ensconced in Wandsworth prison, Kweku Adoboli appears to have precipitated a 60% (minimum) reduction in the UBS investment banking bonus pool.
The figures are given in a confusing graph included in today’s investor presentation. Shown below, this shows the portion of the overall UBS bonus pool allocated to the investment banking falling from around 57% last year to around 38% this year.
At the same time, the total pool has been cut from CHF4,245 to CHF2,567. The investment banking bonus pool has therefore fallen even more dramatically – from around CHF2,405m for 2010, to just CHF971m for 2011.
To make matters worse for anyone at UBS, that CHF971m includes money deferred for future years. Overall, deferrals at UBS don’t look too punitive at just 28%, but that proportion is likely to be higher in the investment bank.
At the very most, therefore, the UBS cash bonus pool is going to be CHF703m this year (£484m), averaging £28k a head when spread between the bank’s 17,000 investment banking staff. Total bonuses, including the deferred component will average CHF56k (£39k) in the investment bank. In reality, however, a high proportion of this year’s UBS bonus pool is likely to go the bank’s 200 or so code staff. Expect a LOT of zeroes.
Despite having hacked successfully at staff costs, UBS's investment bank is still in trouble. 622 jobs were eliminated in the fourth quarter and the compensation ratio fell from 94% to 63% q-on-q. Unfortunately, this wasn’t enough. With non-staff costs continuing to rise, the cost income ratio in the investment bank was 115% in Q4. Unless UBS can massage non-staff costs down (which hit apparently can’t), headcount or compensation will need to take a further hit.