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Morning Coffee: A warning for UBS and others that aren't cutting jobs. Barclays' art of bonus trimming

In the early days of the pandemic, it was a thing: faced with plummeting revenues and a workforce filled with mortal fear, banks promised not to cut jobs. Those promises are now being referred to three years later as job cuts resurface: banks were too kind; contemporary layoffs need to be all the harsher for it.

Some banks are still being kind, though. Bank of America, for example, has said that it won't be cutting jobs, but will simply stop hiring and wait for existing staff to leave. UBS CEO Ralph Hamers has been similarly benevolent: the bank isn't in retrenchment mode, Hamers said earlier this month - it won't be making widespread job cuts and will be hiring, both in asset and wealth management and in the investment bank, where it wants some new dealmakers, preferably from elite boutiques.

Today's fourth quarter results from UBS highlight the risks of this strategy. While revenues in the investment bank fell 24% year-on-year, costs were up 3%, partly by virtue of higher 'variable compensation expenses' (bonuses), likely for its Asian M&A bankers and fixed income traders who did well last year. As a result, costs consumed 93% of revenues, up from 69% in Q4 2022. 

With costs rising to a dangerously high proportion of revenues, can UBS afford to keep hiring dealmakers without cutting dramatically from its bottom line?  Hamers clearly thinks it can, but there are naysayers bleating from the sidelines. 

One of those is David Mortlock, managing partner at German bank Berenberg. Berenberg cut jobs twice last year and reduced its bonuses to almost nothing. This was valid, Mortlock tells Financial News: things aren't going to get dramatically better in 2023. "We are not convinced the broader industry has properly addressed costs and resource levels," Mortlock declared. He said that Berenberg will be hiring too in 2023, but only because its recent layoffs created a space in which to do so. 

The risk for UBS now is that revenues in the investment bank decline in the manner predicted by Deutsche's banking analysts, who expect both investment banking and sales and trading revenues to fall in 2023. UBS's slender fourth quarter margin suggests this could be problematic.

In the interim, costs at UBS are being cut - the bank said today that it's squeezing technology spending and reducing spending on consultants as part of a program to cut CHF1.1bn from costs across the bank by 2023. Is that enough? Hamers said today that UBS is more interested in returns than the cost income ratio in its investment bank. Nonetheless, UBS might need to stop being quite so kind to people in its investment bank if things don't change in the months to come.

Separately, Financial News reports that Barclays is cutting bonuses by 30% for its investment bankers this year. This is unlikely to be popular, although is perhaps inevitable given that Dealogic says Barclays' banking revenues were down nearly 50% last year. Barclays' investment bankers are also in no real position to complain - last week, the bank appointed new co-heads of investment banking in the form of Cathal Deasy, who was hired in from Credit Suisse and Taylor Wright, an existing employee. Bankers at Barclays who expected to get paid by virtue of their strong relationships with the previous incumbents therefore stand to be disappointed: the new heads of the investment bank bring a bring clean slate to the coming bonus round.

Meanwhile...

Barclays is trading at only 48% of book value. Morgan Stanley is trading above 175% of book value. Barclays' UK credit card business is seen as vulnerable amid a UK recession and its investment bank is very focused on fixed income trading. (Financial Times) 

Contrary to claims that it will stop hiring front office bankers this year, Citi recruited Cyril Besseddik from JPMorgan as head of EMEA healthcare banking. (Bloomberg) 

Ex-Cazenove chief executive on JPMorgan's attitude to juniors: “Their attitude was that this is someone who we’ve invested a lot of money in training, and we need them to do the donkey work. We need to look after them and make sure they’re on board." (Financial News) 

Managing directors at US investment banks in Asia are having 40% to 50% pay cuts. Payouts for senior MDs are falling to $800k to $1.5m for senior MDs and to $600k to $1m for first year MDs. (Bloomberg) 

Mizuho hired Jonathan Bass from Jefferies as head of relationship management for fixed income. (Trade News)

As bonuses are squeezed, bankers are keeping their old watches. “A [Wall Street] guy is not going to buy a Breitling — he’ll never show up at a meeting wearing one. So he’ll just stick with what he already has." (New York Post) 

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Have a confidential story, tip, or comment you’d like to share? Contact: sbutcher@efinancialcareers.com in the first instance. Whatsapp/Signal/Telegram also available (Telegram: @SarahButcher)

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AUTHORSarah Butcher Global Editor
  • Gl
    Globe spoiler
    31 January 2023

    What about UK institutions, Lloyds, Metro Bank, NatWest, Starling bank, HSBC.... Lots of noise about foreign and US banks but no comments on UK companies

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