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UBS now pays the same as Goldman Sachs and other conclusions from today's results

UBS is the latest large bank to unveil its annual results for 2014. For its investment bank this should be an anxious time. The Swiss bank has been investing heavily in senior M&A bankers (whilst ousting some of the old guard), so will want to see some sort of return. Has it paid off? Sort of.

In 2014, revenues at UBS's investment bank slipped to CHF8.3bn, compared to CHF8.6bn in 2013. As at other banks, sales and trading were to blame: markets revenues fell by CHF482m in 2014. By comparison, revenues across the ‘corporate and client solutions division’ – namely M&A, debt capital markets and equity capital markets – actually saw a CHF227m increase in revenues. It is here that UBS hired last year. Some of the biggest name hires were Severin Briznay as head of EMEA M&A and Ian Carnegie Brown as head of consumer and retail investment banking.

1. Average pay per head at UBS is now on a par with Goldman Sachs

This Swiss franc has worked wonders for UBS's investment bankers. Although their pay in 2014 was static (CHF345k ($372k) on average, up from CHF343), the appreciation of the Swiss franc means that UBS's bankers are now paid on a par with Goldman's, who received an average of $379k in 2014.

2. The investment in rainmakers appears to be paying off

UBS’s advisory function posted an increase in revenues for the full year in 2014, from CHF588m in 2013 to CHF708m last year. UBS’s ‘grey-haired’ recruitment spree has largely been focused on senior M&A bankers, so in this respect it’s been vindicated. However, advisory still comprises only a small proportion of total revenues within its investment bank. Equity capital markets, which brought in CHF1,021m, fell by CHF104m, while its DCM business managed a CHF117m increase despite a 45% drop in revenues from Q3 and a 47% year on year decline for the fourth quarter.

UBS’s respected equities division still comprises the lion’s share of revenues at CHF3.7bn for 2014, which is a 5.6% decrease on 2014. Meanwhile, its downsized FICC business – now called FX, rates and credit – slipped by 15% year on year.

3. UBS’s investment bank is among the few divisions where it’s been hiring

Headcount at UBS’s investment bank was up by 179 people on 2013, a mere 2% increase. If this seems indicative of cautious approach to recruitment, it is.UBS hired 346 people into its global wealth management division (excluding Americas). It's easy to see where UBS's strategic emphasis lies.

UBS now has 11,794 people working in its investment bank. It should be noted, though, that this is a slight decline on Q3 when it had 11,881 people. Some senior bankers have been shown the door shortly before bonus time.

4. But front office headcount has been falling

Despite the landmark hires,[efc_twitter text=" front office headcount at UBS has been erratic."] Although front office headcount in 2014 ended higher than in 2013 (5,194 vs. 5,165), 91 front office people disappeared between the third and fourth quarters. This is significant as the third quarter is when the influx of new investment banking analysts comes in. If headcount fell nonetheless, the implication is that UBS made a lot of cuts at higher levels.

This decline was in ‘core’ business areas (which lost 85 people since 2013), but largely in its non-core divisions where headcount slipped by over 1,500 people.

5. The UK remains the shakiest place to work at UBS

Across the organisation, headcount has largely remained stable at UBS at 60,155 people. In the UK, which is predominantly investment banking, employee numbers have, however, been trimmed. Headcount has slipped by 3%, or 170 people. Admittedly, this is a small decline, but it still outstrips any other region, with just the U.S registering a 2% decline.

In both Continental Europe and the MENA region, employee numbers are up by 8% while UBS’s Asia-Pacific operation has increased headcount by 4% to 7,385 people, which again suggests a focus on wealth management recruitment.

6. The investment bank is still massively missing RoE targets

UBS’s investment bank has a 15% return on actual equity target for 2014. It achieved 1.4%, or 4.4% on an adjusted basis, which is still a huge miss and implies a need for greater cost scrutiny.

7. The compensation ratio also will not budge

Year on year, UBS’s investment bank comp ratio was driven down to 41% in Q4, from 46.2% for the comparable period in 2013, suggesting a reduction in bonus accrual. However, it was 48.7% for the full year in 2014, up from 46.3% in 2013.


AUTHORPaul Clarke

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