It is a morning of surprises, or not. Both Barclays and UBS have reported their first quarter results. Neither are especially good, but UBS's contain some surprisingly good news and Barclays' contain some predictably bad news.
Firstly, after widespread outrage over its increased bonus pool for 2013, Barclays seems to be seeking to make amends. In the first quarter, total compensation spending at its investment bank fell 20%, from £1.4bn to £1.1bn. Our calculations, based on data available in Barclays' results, suggest that Barclays' investment bankers earned a mere £45k ($76k), or so, each in the first three months of 2014. This was more than at RBS (£33k), but considerably less than at Goldman Sachs ($123k).
Trushar Morzaria, Barclays' finance director, said accrued bonuses weren't the only form of compensation to fall at Barclays in the first quarter. Fixed pay costs (salaries and allowances) also fell by 8%.
Morzaria said 450 directors and managing directors have been let go from Barclays' investment bank over the first quarter. And more redundancies are yet to come. In the presentation accompanying today's results, Barclays said it will be making more senior people redundant in the months to June 2014.
Over at UBS, there have also been headcount reductions. In the first quarter of 2014, UBS's investment bank employed 684 fewer people than in the first quarter of 2013. 73% of these job cuts over the past year (500 people) were front office investment bankers as UBS has sought to take out costs.
Surprisingly, however, UBS has actually added headcount in its investment bank over the past three months. At the end of March, it had 245 people more than at the end of December. Even more surprisingly, the bank said many of these new hires were front office bankers.
In this sense, UBS seems to be a little behind its self-imposed schedule. As we noted previously, the Swiss bank needs to dump an average of 588 investment bank employees every three months and 2,352 people every year if it's to meet the 10,000 person headcount reduction target it set out in 2012.
Equally unexpectedly, UBS says it hiked bonus accruals in the investment bank during the first quarter. The cost/income ratio in the investment bank rose to 75% in the opening months of this year, driven by what the bank itself describes as 'higher variable compensation expenses.' In other words, it's accruing more money for 2014 bonuses.
Pay per head at UBS's investment bank was nonetheless largely flat during the first quarter, at CHF100.4k ($115k). Notably, this was 50% higher than at Barclays....
Needless to say, Barclays has been struck by the departure of several of its most senior ex-Lehman M&A bankers in the US. Skip McGee, Paul Parker and Stuart Francis have all vanished. This looks like unfortunate timing given that the M&A business was the only twinkle in Barclays' first quarter mire. However, Morzaria put a brave face on it. Barclays has a very strong pipeline, he said. It also has "depth of talent." The disappearance of those disgruntled M&A bankers will make no difference, allegedly. It may even save Barclays money in redundancy costs as it seeks to evict senior staff.
Finally, while many of UBS's fixed income traders were culled back in 2012, it's looking increasingly likely that Barclays' 'macro traders' (its foreign exchange and rates traders) will indeed face some serious pain when the bank unveils its strategic plan in two days' time.
There was much talk on today's conference call of Barclays having the wrong 'business mix' in the first quarter. Macro products were to blame. 'Macro products' revenues at the bank fell 48% year-on-year. The bank said its fixed income currencies and commodities (FICC) busines under-performed in the first quarter of 2014 and out-performed in the first quarter of 2013. It's worth noting that Barclays' FICC business did far, far worse than RBS's, where revenues fell a mere 8% year-on-year (or 20% when gains from the sale of rates inventory are taken out).
Analysts pointed out that Barclays' FICC business used to generate solid and unwavering revenues no matter what. Not any more. Something needs to change, and soon. There are now expectations of a 'significant change in direction' say analysts at Deutsche Bank.