Fears that investment banking bonus pool has been halved at UBS

Despite releasing some detailed information about this year's remuneration policy over two weeks ago, UBS has yet to tell its investment bankers the size of their bonuses. The big day is March 6.  In the meantime, harsh rumours are circulating suggesting that the bonus pool for the Swiss banks investment banking division will be slashed by far more than the 7% reduction announced for the overall bank.

"People are saying the bonus pool has been cut and that 50% of people will be paid market rates with the rest paid below market," said one UBS insider.  "Equities bankers at UBS are being given guidance that their bonuses will be down 40%," said one equities headhunter who declined to be named because he works with UBS. "In fixed income, the cuts to bonuses are expected to be much more dramatic."

Another investment banking headhunter, who spoke on condition of anonymity, said he'd spoken separately to two senior UBS bankers saying the bonus pool is down 50%. "Andrea Orcel went with his compensation budget to head office and they cut it by 50%," he alleged. "Some people at UBS will be paid bonuses this year; a lot will receive nothing at all."

UBS declined to comment on bonuses.  When it announced its fourth quarter results, the Swiss bank said it had cut bonuses across the bank as a whole (ie. including private banking and other divisions) by only 7%. It's conceivable that the investment banking element of this bonus pool has been cut far more substantially. Total compensation per head - including salaries and bonuses - at the investment bank was reduced by only 4% year-on-year in 2012. However, total compensation per head includes termination payments for the 1,141 investment bankers let go last year.

Banking analysts said it makes sense for UBS to slash bonuses to encourage people to leave and avoid having to pay severance. The bank intends to make  10,000 investment banking layoffs over the next three years. "If UBS can persuade people to leave voluntarily, it will save large amounts of money," said Dirk Becker at Kepler Capital Markets. Nor is it not necessary for UBS to pay generous bonuses to prevent its best investment banking staff from leaving, added Becker: "Anyone who's any good is trying to get out of UBS anyway."

Simon Maughan, head of sector strategy at Olivetree Securities, said UBS may need to cut bonuses dramatically because a high proportion of its compensation is comprised of inflexible fixed salaries. "If UBS wants to get compensation down, it will have to cut bonuses more substantially. However, its higher salaries would imply that the overall package will still be competitive,” said Maughan. Some 41% of compensation for code staff at UBS was paid in the form of salary in 2011 (the last year for which figures are available), compared to 24% at Barclays.

UBS may also be inclined to slash bonuses for its investment bankers after it was fined $1.5bn for rigging Libor.