UBS is the bank that every investment banker would like to see do badly. After all, no bank should be able to lay off 10,000 staff and get away with it. Unfortunately, therefore, UBS - the bank with the biggest redundancy plans to date - has had a good second quarter and appears to have substantially increased investment banker pay and productivity. Deutsche Bank looks like it's wilting by comparison.
In the second quarter of 2013, UBS's investment bank made a CHF775m profit, versus a CHF92m loss one year earlier. The Swiss bank's equities sales and trading business had its best second quarter for three years and advisory revenues 'increased significantly across all regions' driven by more 'private deals' - seemingly coming from UBS's private banking business. Even revenues from UBS's debt capital markets business - deemed unworkable by analysts at Deutsche Bank now that it's no longer supported by a full fixed income sales and trading business - stayed solid. Ok, so fixed income sales and trading revenues at UBS fell 21% on the second quarter of 2012, but this looks acceptable given the bank's de-emphasis of fixed income.
Deutsche Bank also did pretty well in terms of net income (up 58% year-on-year in the corporate and investment bank in the second quarter). However, for a bank that's big on fixed income sales and trading (FICC), Deutsche didn't do well in its core area. The German bank suffered a 11% year-on-year drop in second quarter FICC revenues and saw its overall sales and trading revenues rise by only 2% year-on-year. Analysts at Goldman Sachs said recently that FICC revenues rose by an average of 13% at U.S. banks in the second quarter, suggesting that Deutsche is losing market share. The German bank blamed lower revenues everywhere from liquidity management, to rates and flow credit and commodities, and said it made 'significantly lower revenues in RMBS.'
UBS split out figures for front office investment banking headcount for the first time ever and boasted that the productivity of its front office investment bankers (measured in terms of revenues per head) has doubled over the past year. In the same period, UBS has cut 1,272 front office investment bankers and 775 other investment banking staff. In other words, UBS is disproportionately culling its front office.
The good news is that UBS investment bankers who keep their jobs seem to be being paid more: compensation per head rose 17% to CHF186k in the first half of 2013 (although this included severance payments for redundant staff). Higher pay has taken the form of higher salaries rather than higher bonuses: UBS said variable compensation has fallen, but pay is up and - as we were first to report in May - UBS has hiked some banker salaries by 20%.
In the first half of 2013, UBS paid its average investment banker CHF185k per head. This was considerably higher than its arch rival Credit Suisse, which paid CHF151k, and has cut pay by 11% this year.
UBS was also looked a lot more generous than Deutsche Bank, which paid people in its corporate banking and securities unit an average of €116k (CHF143k) in the first half, and kept pay stable.
Like UBS, Deutsche has been cutting staff. Unlike UBS, the German bank has been cutting more heavily in the back office: over the past year, Deutsche said it removed 1,142 front office bankers along with 1,397 other investment banking staff.
This looks like the right move. Deutsche is trying to take out €4.5bn of costs from its investment bank by 2014 and is focused on removing duplication from the back office, where it looks seriously overweight. In the second quarter, Deutsche had 3.2 back office staff for every productive front office banker. UBS had 2.2.
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