UBS expects its pay budget to fall by about $4bn, or one-third, as Europe's biggest casualty of the US credit crisis adjusts its finances in the light of a reduced headcount and shrinking income from many of its core businesses.

The bank, which has had to write down about $43bn since the outbreak of the credit crisis, attributed the decline largely to investment banking, one of its core divisions alongside private banking and asset management, where there has been a sharp fall in business in many areas.