Worst bonus outlook for 2010: anyone not guaranteed at UBS

There are going to be some negligible payouts this year. Morgan Stanley is not expected to pay well. Nor is BarCap. Nor is Nomura.

However, the prize for pessimism about 2010 pay should go to any longstanding people at UBS. Unless things change dramatically, they stand to be very disappointed.

"There's a lot of insecurity about pay at UBS," says one fixed income headhunter. "I've spoken to a few people over the past week and there are big question marks over how the bank can afford to pay them."

Too many hires, too few revenues

The problem is that UBS has hired massively.

This year it's brought in 981 people in total, 427 of whom are at executive director and above.

These hires have had an impact. There are 225 new executive directors and MDs in FICC. In the first nine months of 2010, FICC sales and trading revenues at UBS were CHF4.7bn, compared to negative revenues of CHF1bn in 2009.

However, the impact has been insufficient to offset rising compensation costs and stagnant revenues elsewhere in the investment bank. Long term, Carsten Kengeter wants to get the cost income ratio in the business down to 70%; in the third quarter it was 98% once one-off mitigating factors were taken out of the equation.

UBS insistent it will pay

Despite this, UBS is insisting its people won't be disappointed.

While other banks have reduced compensation accruals per head this year, UBS has increased them. In the first nine months, pay per head in the investment bank was up 14% on 2009.

Equally promisingly, in October, CFO John Cryan said the bank had learnt its lesson from 2008, and weren't going to hand out widespread zeros.

However, UBS has been economical with the truth in the past. In November 2009 Alex Wilmot-Sitwel, then co-head of the investment bank, said they planned only 'modest' hiring.

The good news for UBS staff is that they move prove easier to poach. Financial News reports that the bank has changed its performance appraisal system from a dual ranked system where grades were assigned for contribution and competency, to a numbered system which simply measures performance. This is in line with other banks and may make it easier to identify and pick off UBS's high performers.