UBS Plans to Freeze Salaries in Investment Banking Unit
With global slowdown taking a toll on profitability of the European banks, the Swiss bank UBS Group AG UBS is planning to freeze salaries at its investment banking unit, which employs around 5,200 full-time staff in locations including New York, London, Hong Kong and Zurich.
In order to improve profitability by curbing costs, UBS will impose a pay freeze until the second quarter, which will apply to all investment bankers including those who have been promoted recently. A compensation review will be done later by the bank based on the market conditions, business results and pay structure across the industry.
However, only the base salaries will be frozen. The performance-related bonuses will not be affected.
While the review could result in a belated increase in the base pay, UBS will probably be very cautious about committing to higher salaries if the environment is still challenging, a person familiar with the matter said to Bloomberg.
The move comes as the bank shifted its focus on wealth management business, which now accounts for over half of its operating profit. The bank has been trimming down its investment banking division as part of its strategy, subsequent to the global financial crisis.
UBS’ Investment Bank unit recorded adjusted operating profit before tax of CHF 223 million ($225.2 million) in the fourth-quarter of 2015, down 19.2% year over year. Moreover, despite the company’s expansion efforts, the Wealth Management division’s adjusted operating profit before tax decreased nearly 27.2% year over year to CHF 505 million ($509.9 million). The decline was mainly owing to lower client activity and higher operational expenses.
While other banks like HSBC Holdings plc HSBC and Barclays PLC BCS imposed pay freeze as well, Deutsche Bank AG DB lowered bonuses after posting losses for 2015.
The current move does not come as a surprise with slowdown in China and falling oil prices straining profitability. The companies have been battling these macroeconomic headwinds by restructuring their businesses, trimming staff and reducing compensations, thereby cutting costs.
While several concerns including headwinds from interest rates and the weak performance of the euro against the Swiss franc along with global and geopolitical issues continue to weigh on UBS’ financials, the company remains committed to the execution of its strategies and expects to generate sustainable returns for shareholders.
Currently, UBS carries a Zacks Rank #3 (Hold).
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