Another 1,200 redundancies at UBS investment bank, but 3,500 would be preferable
UBS is not looking very healthy. The bank has just released its second quarter results and they are a bit sick, particularly with regards to the investment bank.
The big problem seems to be that UBS is still spending too much money on its investment bankers. Even after trimming 4,051 people and reducing compensation per head by 5% to CHF172k ($162k), its compensation ratio is still crazily high.
Admittedly, revenues at the UBS investment bank were muddied by losses related to debt valuation adjustments and to the bank's ongoing withdrawal from fixed income trading positions. When these are taken into account, compensation as a percentage of revenues was a disturbing 146% in the first half.
However, even when the valuation and fixed income losses are eliminated, UBS still doesn't look great.
First half compensation at the bank was CHF2,659m, while underlying revenues were CHF4,125m, implying a compensation ratio of 64%. At Credit Suisse the comparable ratio was 45%. To get this down to the industry norm of 50%, UBS will either need to slash pay or cut more than 3,400 staff.
Given that the compensation accrued per UBS investment banker in the first half was only 60% of that at Credit Suisse, pay cuts seem unlikely. Job cuts are, however, on the cards.
In a slide show accompanying the results presentation, UBS laid out the redundancies it's planning for the rest of the year. As shown below, they include another 1,200 in the investment bank, in addition to the 1,142 that have already taken place in 2009. Unfortunately for bankers at UBS, unless revenues pick up very soon, this still looks woefully inadequate.
Source: UBS
