UBS’s pay increase looks a little outrageous in the circumstances

UBS appears to be increasing its investment bankers' pay.

According to today's third quarter results release, average compensation per head in UBS's investment bank increased 5% in the first nine months of the year compared to the same period of 2013.

The average UBS investment banker earned CHF275k in the first nine months. This is 18% more than his/her counterpart at Credit Suisse earned over the same period and is 5% more than UBS paid its 'average investment banker' last year. The compensation ratio in its investment bank now stands at 51% for year-to-date 2014, far higher than Goldman Sachs which used to pay its employees 50% of revenues as a matter of course, but has only allocated them 40% so far this year.

What did UBS's investment bankers do to deserve such lavish rewards? Not much. Today's results reveal that the investment bank made a loss of CHF280m in the first nine months of the year, down from a profit of CHF2bn in the same period last year. Admittedly, this was mostly due to a huge CHF3.2bn bill for 'general and administrative expenses', but given that this bill is mostly comprised of 'provisions for litigation, regulation and similar matters', you might think UBS's investment bankers would feel the effects in their wallets.

UBS is claiming mitigating circumstances. As we noted earlier, the bank said it reduced 'variable pay' [AKA bonuses] in the third quarter. However, for the bank as a whole, the reduction is entirely down to reduced deferral payments for previous years - this year, UBS has actually hiked the amount it's set aside for bonus payments.

There's also a possibility that UBS's increased compensation is down to payoffs for all the people it's made redundant. Except that it doesn't really seem to be making many people redundant. Despite is promise to cut 10,000 people from the investment bank by 2017, headcount at the unit actually rose by 4 people between October 2013 and October 2014. So either UBS hasn't been doing much cutting, or it's been cutting and doing a huge amount of hiring.

Either way, it looks a lot like UBS is trying to remedy misdemeanors past. The Swiss bank has a reputation for disappointing at bonus time. That may not be the case in 2014 - even though its staff have racked up billions of francs in fines.