UBS released its fourth quarter results this morning. If you work in its investment bank they were, ostensibly, ok. UBS's investment bank generated a return on attributed equity of 25.9% last year - the sort of number other banks can but dream of. It also hired 49 new people for the front office and paid each of its front office bankers an average of CHF614k (£417k/$601k), an increase of 8% on the previous year.
Scratch the surface though, and UBS investment bank's finery looks a lot less lustrous.
In the presentation accompanying today's results, UBS broke out profitability of its business units by region.
As Huw Van Steenis, head of European banks research at Morgan Stanley, pointed out during this morning's call, the results are not that pretty for the investment bank.
In 2015, UBS's investment bank generated CHF400m of profits in Europe, CHF100m less than one year previously. With the exception of Switzerland, this made EMEA the least profitable region for UBS's investment banking activities. As the chart below shows, the big profit driver at UBS in Europe (and everywhere), is wealth management.
UBS profitability by business area 2015 (IB=the investment bank):
Operating margins in UBS's investment bank are highest in APAC, where they're more than double their level in EMEA.
UBS has begun providing headcount and pay figures only for front office employees in its investment bank. It has also restated pay and headcount for 2014 to fit its new reporting format. This makes it possible to calculate the differential between pay for front office bankers at UBS and pay for infrastructure staff (figures aren't available for 2015).
In 2014, UBS's investment bank employed a total of 11.794 people, who were paid a combined CHF4bn. Of these, 5,194 were front office bankers who were paid a total of CHF3bn. Clearly, front office bankers get most of the pay.... On a per head basis, UBS's front office investment banking staff earned an average of CHF571k in 2014, while its infrastructure staff earned an average of CHF167k.
When J.P. Morgan's bank analysts penned their predictions for investment banks in 2016, they said this would be the year in which banks tackle infrastructure costs. UBS demonstrates just how they're likely to go about it.
As the chart below, taken from today's presentation, shows, UBS has substantially increased the proportion of its global work force in 'offshore and nearshore locations' over the past two years. That's good news if you want to work in Poland, Pune or Nashville, not if you want to work in London, Hong Kong or NYC.
Like Deutsche Bank, UBS had a bad year in M&A last year. This was in stark contrast to US investment banks, which had an outstanding time.
However, if UBS's M&A revenue performance looks bad, it's nothing compared to its deteriorating position in debt capital markets. DCM revenues at the bank fell by 32% last year; the closest comparable fall was at Morgan Stanley where they dropped 16%.
Lastly, UBS is often regaled as an example of an investment bank which has put its house in order.
This is not necessarily the case. As the graphic below from today's presentation reflects, the cost income ratio at UBS's investment bank remains erratic. With a cost ratio of 85% in the fourth quarter of 2015, UBS confirmed that it will be doing more to take costs out of the investment bank in the year to come.
Cost income ratio, UBS's investment bank:
Find out where UBS features in the 2016 eFinancialCareers Ideal Employer Rankings