Late Lunchtime Links: The most disturbing thing about UBS's redundancies. Why investment bankers at BNP Paribas shouldn't get too excited

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The machines are coming

The machines are coming (Photo credit: Wikipedia)

A worrisome new fact has emerged about UBS's redundancies: in some cases they involved the replacement of highly paid human beings with machines.

Bloomberg has elicited this information.  It cites the example of David Gallers, the former head of credit-default swaps index trading at UBS whose job it says has been eradicated to make way for a computer algorithm. This algorithm can trade, 'as much as $250 million of the Markit CDX North America Investment Grade index and $50 million on the speculative-grade benchmark in one transaction.'

Building a computer algorithm costs a 'few hundred thousand' dollars, says Bloomberg, and the algorithm runs for years - with some tweaking. No one knows how much Gallers himself was earning, but six years' ago it seems an MD in credit derivatives could command $2m a year. Credit derivatives traders will be earning a lot less today, but if they are to compete with far more efficient algorithms, it appears that anything above $100k will be excessive.

Separately, BNP Paribas's results are out and there's excitement over the fact that it's completely finished deleveraging. BNP has also made 90% of its investment banking redundancies and its investment banking revenues were up 41% in the third quarter. However, it is not all good. Once the most efficient investment bank of the lot, the chart below shows that BNP is now less efficient than Bank of America, Barclays or JPMorgan (although it looks pretty good in comparison to UBS). It's also worth noting that profits at BNP's investment bank fell 27% in the first nine months of 2012 vs. the same period of 2011. Bonuses at the French bank are very unlikely to be good this year.

 Source: BNP Paribas


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