UBS expects pay budget to fall $4bn as it adjusts finances

SWISS BANK UBS expects its pay budget to fall by $4 billion, or one-third, as Europe’s biggest casualty of the US credit crisis adjusts its finances in the light of a reduced headcount and shrinking income from many of its core businesses.

The bank, which has had to write down about $43 billion since the outbreak of the credit crisis, attributed the decline largely to investment banking, one of its core divisions alongside private banking and asset management, where there has been a sharp fall in business in many areas.

More than 2,600 staff have left UBS’s investment bank in the past year, some 12 per cent of the total.

In the second quarter alone, the division reduced its headcount by almost 1,700, reducing the total to 19,475. The group has a year-end target of 19,000.

Figures for the first six months showed the bank made salary payments or set aside bonus reserves of 7.76 billion Swiss francs. That was far less than the SFr11.77 billion in the same period last year, and was the lowest such figure since 2003.

The decrease only partially represented bonuses, which are normally paid early in the year.

UBS’s accounts for 2007 showed that 49 per cent of pay took the form of bonuses or variable compensation.

Bonuses tend to be more focused on staff in investment banking and asset management, where, especially in the US, such variable compensation comprises a higher proportion of salary than for mainstream retail or private bankers.

“The bonus pool will be smaller next year,” admitted Andreas Kern, a UBS spokesman.

UBS this month announced plans to give its three divisions greater autonomy, including making compensation and bonuses much more dependent on the performance of individual units, rather than the entire group.

The greater independence being granted to the bank’s three divisions suggests changes will be aimed at improving flexibility and transparency. – (Financial Times service)