Whisper it, but after a couple of really bad quarters in Q4 18 and Q1 19, the second quarter has some good news for UBS investment bankers. Banks don’t always like to shout about it to their shareholders when they increase bonuses for employees, but it’s clear that there’s been a small rise in the accrual over the last quarter. UBS is highlighting a $356m fall in variable compensation half-on-half, but this was $372m in the first quarter, so across the bank, bonus cuts have stopped coming through. Comparing Q2 19 to Q2 18, the accrual has to be slightly up.
Some of this will have been driven by an increase in US financial advisors’ commissions, but it’s noticeable that the discussion of compensation costs in the accounts for the investment banking division doesn’t include any mention of variable comp at all. This is generally a sign that it went up. The total pay bill for the investment bank was up 13% on Q1 19, versus a nearly flat headcount, so unless the 22 extra employees UBS added during the quarter were incredibly well paid, this confirms the view that the bonus pool per capita is likely to have grown.
Employees, after being made to wear a disproportionate amount of the pain of the last few quarters, are beginning to claw something back from shareholders. After reaching a multi-year low of 35.9% in Q4 18, the investment bank’s compensation ratio had gone out to 39.4% after the revenue horrors of Q1 19. For the last quarter, though, despite a 17% rise in revenues since the first quarter, the comp ratio only fell by a single percentage point to 38.3%.
Does the performance of the investment bankers justify the good news on pay? Well, the context of the bonus accrual (a comparatively good quarter but certainly not enough to rescue the whole of H1) is also a pretty good description of the revenue picture.
Looking on a quarterly basis, UBS blew the lights out, particularly in capital markets, where ECM revenues were up 23% on Q2 18 (better than any bank to have reported so far except BoA) and DCM revenues were flat, ahead of any US firm except Citi. In equities sales and trading, UBS’s performance was in line with peers, with a 9% fall, and in FICC (adjusted for a gain on Tradeweb and a prior-year one-off) they were 7% down, again in line with peers.
The advisory bankers, possibly getting their groove back after the post-Orcel uncertainty, were up 59% on Q2 18, way out in front of the pack.
On an H1 versus H1 basis, though, it’s less impressive. Advisory revenues were up 6% on H1 18, in line with Citi and better than JPM or BoA, but well behind Goldman Sachs. Capital markets revenues were down by 25% in debt and 28% in equity, putting UBS toward the bottom of its peer group. Only fixed income trading revenues outperformed, with a gains-adjusted half-on-half decrease of 2.5%. Equities trading, at 16% down, was in line with Goldman and JPM, better than Morgan Stanley but significantly worse than Citi or BoA.
All in all, more of a “light at the end of the tunnel” quarter than “happy days are here again”, but after the last year, UBS bankers will be glad that the bonus pool is no longer falling.
Image credit: Rafael_Wiedenmeier, Getty