This is why UBS bankers were complaining about their bonuses
Today's fourth quarter results from UBS help explain why there was some disgruntlement about bonuses when they were announced at the Swiss bank last week: UBS's investment bank is loss-making. It can't afford to be generous.
In the fourth quarter of 2023, UBS's investment bank made a loss of either $169m before tax, or $280m when "items that management believes are not representative of the underlying performance of the businesses' are added back in."
At the same time, the non-core unit which contains much of Credit Suisse's markets business, and its people, and which is tasked with releasing $6bn of capital by the end of 2026, made a loss of nearly $1bn. And that was excluding $749m of integration-related expenses.
Bonus-paucity is unsurprising in the circumstances. Nor is it surprising that UBS now intends to cut $13bn of expenses instead of $10bn, of which only $4bn was saved last year. The remaining cuts will occur on the schedule below, provided in today's investor presentation.
As fast as UBS cuts costs, though, it's adding them in integration expenses. These hit $4.5bn last year and are due to equal the $13bn of cost reductions. Culling Credit Suisse's IT applications while closing its trading books will be an issue through to 2026.
It's perhaps unsurprising that Credit Suisse and UBS's investment bankers and traders aren't generating big profits amidst the changes.
In the fourth quarter of 2022, when they were still going it alone, Credit Suisse's M&A bankers generated $194m in revenues and its capital markets bankers generated $220m. In the fourth quarter of 2023, Credit Suisse and UBS's combined M&A bankers only generated $190m in M&A revenues, although the combined capital markets team generated a more impressive $646m.
Credit Suisse's once powerful global markets business, meanwhile, appears to have been reduced to a dwindling entity housed in the non-core unit. Credit Suisse made $2.2bn in fixed income trading in 2022 (down from $4.2bn in its heyday in 2020) and $1.3bn in equities trading. However, the two combined banks made only $4.6bn in equities income trading and $1.7bn in fixed income trading last year, which was less than UBS made on its own.
UBS CEO Sergio Ermotti is confident that it will all turn out well, however. Speaking today, he said the bank is now moving to the "next stage" of its integration, and "restructuring and optimizing" the businesses it's acquired. 4,336 people have been cut since September. More cuts are coming. It may be a while before UBS bonuses are something to get excited about.
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