UBS M&A bankers should be afraid: today’s results give Andrea Orcel a licence to clean them out

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Be afraid

Be afraid

It’s UBS Q1 results day. 

Amidst the high own-debt charge, the falling compensation, the falling headcount, the ok performances in FICC (except in rates) and equities, one thing stands out: M&A has done very badly.

UBS even admits as much.

“Advisory revenues decreased 33% to CHF 169 million from CHF 254 million, as our market share declined and the global fee pool shrank 19%,” it states in a document extolling the virtues of all its other investment banking businesses.

This is bad if you work in M&A for UBS, because in July Andrea Orcel is arriving to take control of the M&A and capital markets activities of the investment bank. And Andrea Orcel is not known for suffering fools gladly.

Seemingly impervious to Orcel’s reputation for ruthless fieriness, Sergio Ermotti said this morning that they’re all looking forward to his arrival and that the new co-leadership structure at the investment banking (Carsten Kengeter and Orcel) will, “fully exploit the natural leadership skills” of both men.

Today’s results also revealed that UBS cut another 263 people from its investment bank in the first quarter, and that headcount was down by 626 people year- on- year. Compensation per head was down 16% year-on-year in Q1, at CHF90k. Credit Suisse accrued CHF100k.

Ermotti insisted that UBS is paying well, however. “We are accepting of a higher cost ratio in our investment bank if we are competitive in attracting and retaining the best talent,” he claimed. He also said that UBS plans to defer only 28% of its compensation this year, down from a historical average of around 35-40%.

VaR, everyone wants to hire FX bankers, UBS wants to hire in the US

Separately, UBS has been doing exciting things with VaR and wants to be recognised for its achievements. Year- on- year, its value at risk was down a massive 55% in the first quarter. Given the amount of risk it’s taking, UBS would like to point out that it’s more competitive than all its competitors (using the hitherto unmentioned metric of ‘VaR efficiency.’).

Also separately, it seems like FX professionals must be highly sought after. Ermotti said everyone’s trying to expand into FX as it’s a relatively low capital intensity business, and that FX leaders (like UBS) are trying to defend market share.

And finally, the US seems to be the place of focus for any hiring at UBS now. CFO Tom Naratil (formerly of Bear Stearns) said the bank will: “Take opportunities to improve market share through hiring experienced professionals, particularly in the Americas.”  Ermotti confirmed that UBS is trying to, “position itself,” better in the US.  Orcel may start clearing out US investment bankers first.

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