Senior UBS bankers are getting a little fed up with all the guff surrounding their bank.
Firstly, they would like to point out that any allegations that they will zero the investment banking bonus pool this year are simply wrong.
Secondly, they would like to point out that they haven't pulled out of FICC: far from it.
Investment banking bonuses at UBS
A (seemingly spurious) rumour that UBS will pay no investment banking bonuses at all this year is doing the rounds of London headhunters.
The head of one search boutique informs us that he was told by a senior UBS insider that the bonus pool is going to be zero for 2012: "Andrea Orcel has made a lot of promises to a lot of people and Orcel himself was hired on a big promise," the headhunter claims (requesting anonymity). "When you take those promises into consideration and you look at the massive restructuring charge, there's not going to be a lot left. We've been told by senior staff that bonuses at UBS are going to be non-existent."
UBS is declining to comment on its bonus pool. However, the zeroing claim is categorically denied by a senior figure at UBS's investment bank. Speaking off the record he says: "It is a total piece of cr*p that we have a zero bonus pool in the investment bank. We clearly stated its size in our results."
This does, indeed, appear to be the case. The chart below, taken from the presentation accompanying UBS's third quarter results, explicitly states that across the bank UBS has accrued CHF1.5bn for new bonuses this year (as distinct from money set aside to pay previous years' deferrals). This is down on 2011 - but only by 20%. The chart also explicitly states that the figures given below don't include restructuring charges. The good news: bankers at UBS will, apparently, get paid this year.
The new shape of FICC at UBS
Separately, Andrea Orcel sent a memo to UBS's investment bankers this morning. We've reproduced this in full here.
In this memo, Orcel names his key lieutenants (David Soanes, Head of EMEA, Steve Cummings, Head of Americas, Matthew Grounds, Head of APAC, Rajeev Misra, Global Head of Financing Solutions).
Orcel also specifies that 'Investor Client Services' - the new name for UBS's sales and trading business, will generate 66% of the investment bank's revenues in future.
This implies that UBS's FICC business will remain a significant source of revenues for the bank: in the third quarter equities sales and trading generated 34% of its revenues, while FICC sales and trading generated 48%. If FICC is to generate just 30% of UBS's future investment banking revenues, that implies a reduction in the revenue size of the business by around 54% - in other words UBS's fixed income sales and trading team is being hammered, but it's not being bludgeoned to death.
Most notably, UBS will also retain some credit and rates trading capabilities - not just FX and precious metals trading as initially seemed the case. Today's announcement clarifies that Chris Murphy will be global head of the rates and credit business.
"We haven't exited credit trading by any means," says the senior UBS banker. "Nor have we cut their lines or reined in their risk limits. We still have a secondary book, but it is being driven by our primary business.
"What we have exited is the legacy derivatives business, the sovereign supranational and agency business, and the correlation book," he clarifies, declining to give numbers for how many people will remain in the credit and rates team.
"UBS has said that it will be keeping its flow credit and flow rates business," says Jon Peace, European banks analyst at Nomura. "But they've given no indication of the size of the business."
How safe are DCM jobs at UBS?
Does the new, slimmer, but still existent credit trading business at UBS mean the bank's debt capital markets bankers are going to still have jobs in future?
"Absolutely," says the senior insider we spoke to. "Our entire sales and trading business is now driven by what's happening in the primary market. Our salespeople and traders are no longer having to work across 50 or so different securities, and that should work to our advantage."
Others are not so sure, however. Dirk Becker, an analyst at Kepler Capital Markets, says UBS's DCM business will die a slow death. "Over time their smaller fixed income business will start to erode their primary business," he claims. "If you’re an issuer and you’re looking at 15 large investment banks to work with, will you pick the one with a large fixed income business and full market making capabilities, or will you go for the one that’s simply cherry picking the business it wants to be involved in?"
Becker predicts that UBS's DCM business won't die straightaway, but that it will be, "marginalized quarter-by-quarter."
The insider we spoke to absolutely refutes this: "If you are in the simple business of originating bond transactions for corporate and FICC clients here, not a lot has changed. 1 or 2 people have disappeared, but that's normal at this time of year. We absolutely haven't exited credit trading or reduced our ability to sell primary deals."
Carsten, Andrea and the UBS redundancy packages
None of the latest UBS revelations are likely to make much difference to the UBS bankers who arrived last week only to find their passes wouldn't work. They all remain on 'special leave', waiting to find out what kind of redundancy packages they're going to be offered.
Here too, however, there is some good news. The senior insider we spoke to suggested UBS is generous with its redundancy packages by industry standards: 4 weeks' pay per year of service is the norm; if you've worked a portion of a year it will be rounded up. Again, UBS declined to comment.
Meanwhile, Carsten Kengeter is reportedly being offered a 'lucrative new contract' to wind down UBS's legacy bank, including a share of the profits earned from successful exits. UBS declined to comment here too.
Andrea Orcel remains firmly in control of all that remains of the investment bank. Doubts have been raised over Orcel's ability to run an investment bank which still has significant exposure to CHF900bn of risk weighted assets. However, Becker says Orcel's up to the task: "Andrea Orcel is the big deal maker. If anyone can run an investment bank along this new model, it will be him.”