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UBS to increase pay, Morgan Stanley to reduce it?

A tale of two banks this morning - UBS has conceded that it needs to be more generous to its investment bankers; Morgan Stanley has embarked on a new era of meanness.

UBS is keen to stem staff defections in the US, where it's lost 15 bankers in recent months, and is willing to increase pay to market rates to do so, as well as up compensation in Asia to attract top talent, according to the FT.

This follows a post from Dealbreaker last week claiming that UBS had increased base pay 30-40% in the US. We asked UBS whether similar increases are being extended to the UK, but didn't get a response.

Meanwhile, in a presentation at Deutsche Bank conference yesterday, Morgan Stanley CFO Ruth Porat pointed to the need for "expense re-engineering" to save $500m in 2012 and $1bn over the next three years.

Will Morgan Stanley really reduce pay?

A lot of Morgan Stanley's penny-pinching seems focused on being stingier with routine expenses like Blackberry and travel costs for employees. Headcount within the investment banking and trading is likely to remain stable, according to the Wall Street Journal, with further cuts instead expected at its retail brokerage Morgan Stanley Smith Barney.

Nevertheless, cuts of $1.5bn may be hard to achieve simply by curtailing the use of Blackberries. Pay at Morgan Stanley may yet suffer. Last year, Morgan Stanley traders were reputedly warned to expect bonuses might fall 30%.

In the event, it seems pay for front office staff was down only 2% in 2010. However, this may be because the bank slashed bonuses in the middle and back office, allowing it to pay the majority of front office bankers reasonably well.

Instead, headhunters told us Morgan Stanley paid a disproportionate amount of its bonuses in stock. Maybe because of this, there's been little evidence of a mass exodus of investment bankers.

The fact that Porat made no reference to either pay or bonuses in yesterday's presentation could be because she's deliberately avoiding the subject, or simply that the new era of austerity doesn't include plans to drastically scale back compensation.

Pay increases and multi-year guarantees at UBS in Asia and the US could lead to pay reductions in Europe

According the FT article, UBS is competing against an environment in the US and Asia where multi-year guarantees are still not uncommon. The clear danger is therefore that UBS issues generous multi-year guarantees to its overseas bankers and that European bankers (who are no longer eligible for 2-year guaranteed payouts) suffer when revenues don't come through.

UBS is already facing pressure on costs. According to a note issued this morning by KBW analysts, Swiss banks' earning potential is likely to particularly badly impacted by the weak dollar and sluggish equity markets due to their CHF-geared costs. UBS will be most impacted as a "recovery story", they say.

UBS is also currently losing market share across ECM, DCM and M&A, suggesting bonuses within European investment banking will shrink this year anyway.

AUTHORPaul Clarke
  • bu
    9 June 2011

    UBS is ridiculous. my friend gets outstanding reviews every year (middle office) for the last 4 years, and his salary has incresed by 1k.

    thats right, salary increase of 1k over 4 years and bonuses averaging 800 (no i didnt forget a zero).

    he'd think they were hinting for him to leave if his reviews werent so good and if they didnt beg him to stay when he found another offer. he asked them to increase his salary to a reasonable level (still way below market) and they said they will try next year.

    he promptly left.

  • Fa
    8 June 2011

    UBS to increase pay, Morgan Stanley to reduce it?- DAMN!!!! Well if it's happening in every other bank, MS were sure to follow.

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