UBS cuts bonuses to recoup Libor fine

Swiss bank aims to placate regulators and shareholders

In a move designed to appease regulators and investors, UBS has cut into its investment bankers’ bonuses to recoup a large part of its $1.5bn Libor fine.

The Swiss bank paid the lion’s share of the overall charge out of bonuses for 2012 and previous years, with half of that coming from the investment bank, two people close to the situation said.

As a result, the bonus pool for the investment bankers for 2012 was cut b a third, and thus much more markedly than overall group variable pay, which was reduced by 7 per cent to SFr2.5bn ($2.75bn), these people added.

The decision is aimed at placating regulators and shareholders, who are keen for banks to hold employees to account for the scandal around the manipulation of the London interbank offered rate.

It comes as rival Royal Bank of Scotland was set to pay the entire US portion – around £300m – of its Libor fine from the bonus pool in a settlement expected to be announced on Wednesday.

UBS declined to comment. The bank did not disclose how much of the Libor fine it took from staff but said it had forfeited SFr200m from previous years’ awards in 2012.

Despite the cuts, analysts pointed out that the bank was still grappling with a higher compensation ratio than the average of around 40 per cent in the sector.

In the past year, UBS used 58 per cent of its total operating income for pay, compared with 56 per cent in the year before.

The bank on Tuesday confirmed a plan, reported this week in the Financial Times, to overhaul pay structures and pay bonuses in the form of bonds. It also announced plans to buy back SFr5bn of its own senior debt in a move it hoped would slash its funding costs after a radical shrinking of its investment bank.

UBS said it had made a net loss of SFr1.89bn in the three months to December 31 that was mostly caused by the Libor fine.

Sergio Ermotti, chief executive, said the year’s events had been “a stark reminder” of what could happen when banks failred to live up to the highest standards, but added that the bank had made good pogress in addressing the “missteps of the past”.

Analysts were pleased with a rise in its Basel III core tier one capital ratio from 9.5 to 9.8 per cent. But some were disappointed by UBS’s core non-American wealth management unit in the fourth quarter after it reported an outflow in client funds and a slight drop of the gross margin.

“The key driver of value, wealth management was clearly disappointing, but this is cyclical not structural in our view. It is clear that we will see some light at the end of the tunnel with an improving market environment,” Kian Abouhossein, analyst at JPMorgan, wrote in a note.

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