It's UBS fourth quarter results day. If you work for the investment bank, 2020 was a good year: fixed income sales and trading revenues rose nearly 70% on 2019, more than at any rival; equities sales and trading revenues were up 22%; ECM revenues were up 81%. Operating profit before tax was $2.5bn, compared to $784m in 2019.
Excepting its M&A bankers, whose revenues fell 10% last year, UBS might be expected to treat its staff to higher bonuses for their efforts. At first sight, this seems to have happened. - UBS doesn't break out compensation in its investment bank any more, but across the bank as a whole the bonus pool was up $500m in 2020, an increase of nearly 20% on 2019.
Good news. Except there are some heavy caveats.
Firstly, it's worth remembering that last year's bonus pool at UBS was the lowest since 2012. In the investment bank there was some whinging on last year's bonus day as a result. Any increase this year is off that low base.
Secondly, some of those increased payments didn't go to current UBS bankers and traders - they went to UBS bankers and traders who retired. Remember that UBS relaxed its vesting requirements for staff who decide to quit the industry entirely in the third quarter of 2020? It's not clear how many managing directors from the investment bank took advantage of this offer, but twenty retirees with $5m in deferred stock would account for $100m of the bonus uplift.
Thirdly, UBS also made "a one-time cash payment equivalent to one week’s salary" during the pandemic to compensate its more junior staff. Did this count in the bonus figure? Maybe.
None of this should matter if you're an executive director or managing director at UBS's investment bank. - Late last year, the Swiss bank hiked salaries by 20% for people at this rank and said that bonuses would be adjusted accordingly so that the overall impact was "total compensation neutral."
Although UBS said in October that it would continue to pay for 'out-performance,' the implication is that even after last year's tripling of profits in the investment bank, bonuses haven't really increased by that much. This didn't go unnoticed on today's investor call, where one analyst ask UBS CEO Ralph Hamers whether pay in the bank is now performance-agnostic. "There is probably hardly any increased to the bonus pool in a year when you generated $3bn in incremental revenue," he said. "Do you think that's sustainable? Is the bonus pool to all extents and purposes fixed on the upside and the downside? - Have there been political considerations in keeping the bonus pool flat?"
Hamers denied that this was so and said the bonus pool has increased. However, he then referred to UBS's caution on redundancies during the pandemic, to its resultant higher-than-expected-headcount, and to "thank you" payments made to lower earning staff. The implication is that if you're a UBS banker or trader and your bonus doesn't increase this year, you should resist complaining: it's for the good of the bank as a whole.
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