UBS’s investment bank remains under fire even after the radical shrinkage of 2013. Activist investor Eric Knight has suggested it be combined with Credit Suisse’s in order to become a ‘top player’. UBS doesn’t appear to be listening.
The Swiss bank is still investing in senior personnel for its investment bank after months of bringing in rainmakers within its advisory functions. In the past three months, headcount has increased by 82 people during a period when investment banks typically cut back. Unusually, UBS insists that any increase in staff is down to more people in front office functions.
Here are some other conclusions from UBS’s Q1 2015 results.
1. UBS is still paying its investment bankers well
UBS's investment bankers deserve to get paid. Revenues in its investment bank were CHF2.6bn in the first quarter - a 22% increase on the same period in 2014.In the first quarter.
Obligingly, UBS put aside an average of CHF108.9k ($115.7k) in compensation per head, up from CHF100.4k in Q1 2014. This eclipsed local rival Credit Suisse, which put aside CHF78.3k ($81.5k) per head during the first quarter, but – in contrast to Q4 – lagged Goldman Sachs, which paid an average of $130k in the first three months of 2015.
2. UBS traders had a stellar first quarter – with no extra risk-taking
Compared to this point last year, UBS’s fixed income traders increased revenues by 71% to CHF701m. This was an increase of 136% on the previous quarter when revenues were just CHF297m. Like traders elsewhere, UBS's FICC professionals benefited from volatility in FX markets following the Swiss National Bank’s move to unpeg the Swiss franc to the euro in January.
UBS's equity traders also increased revenues by 15% year on year to CHF1.16bn.
More impressively, while some investment banks allowed their traders to take more risk in the first quarter, UBS kept it flat on both the previous quarter and on Q1 2014.
3. UBS’s new rainmakers have not stopped a slide in M&A
As at Credit Suisse, advisory revenues at UBS slipped in the first quarter, with M&A revenues down 17% on the previous quarter. Compared to Q4 2014, revenues in UBS’s advisory business fell by 29%, even if they increased year-on-year by 12%. For a bank that has invested in a number of new, expensive senior M&A bankers in the past 12 months, this is a concern.
4. ECM appears the place to be
Debt capital markets bankers at UBS suffered in the first quarter, with revenues slipping by 53% to CHF143m compared to Q1 2014. Luckily, the bank's equity capital markets (ECM) bankers are taking up the slack. Year-on-year, ECM revenues were up by 56%. UBS’s recruitment spree originally focused on M&A, but more recently the bank has hired in ECM – bringing in a trio of senior ECM bankers in the US.
5. Asia is the most profitable region for UBS’s investment bank
Profit margins in Asian investment banking are small, with only the top players making it into the black and others struggling to break even. At UBS, however, Asia is the most profitable region – it made CHF300m in the first quarter, compared to CHF200m in both the Americas and EMEA.
However, EMEA saw the biggest jump in revenues – from CHF500m to CHF800m since the end of Q4.
6. Headcount is still falling in the UK
UBS’s UK operations are primarily focused on its investment bank, which is where the bank has been cutting staff following its decision to eliminate 10,000 investment banking jobs in 2013. Headcount in UBS’s UK operation now stands at 5,411 people, down from 5,600 at this point in 2014.
The biggest headcount increase in percentage terms has been in the Middle East. However, absolute numbers are tiny at 169 people. More significantly, headcount in Asia is up by 2% year on year, or 150 people.
7. UBS hasn't been THAT profligate
At the end of the first quarter, UBS had 11,876 people in its investment bank. This was up by 82 on the end of 2014, but was an increase of just 16 people year-on-year.
Credit Suisse has hired 400 people in its investment bank during the first quarter.