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Collapsing profits at UBS's investment bank look bad for bonuses

The third quarter can be important when it comes to bonuses in investment banks. Memories are short, and the months to October set the tone for bonus discussions that are finalised in Q4. A strong performance might make all the difference. 

If you work for UBS's investment bank, then, the third quarter looks a bit unfortunate. In its Q3 results this morning, UBS discloses that operating profits in the division were down nearly 50% compared to last year. 

The business lines aren't entirely comparable, but this is considerably worse than at HSBC, which also reported this morning and revealed that net operating income in its global markets division was largely stable. It's also a greater decline than at JPMorgan's corporate and investment bank (down 33%) or Citi's institutional clients group (down 30%).

What went wrong? UBS blames lower revenues, only "partly offset by lower operating expenses," driven higher by salary inflation and technology spending. In global banking (M&A, ECM and DCM), revenues were down 58% year-on-year. In global markets, they were down 1% as a strong quarter in FX and rates trading was offset by weaker revenues from trading cash equities and equity derivatives. 

UBS has stopped breaking out headcount or pay for its investment bank, but operating expenses in the division were cut 6% in the third quarter. Nonetheless, costs consumed 77.8% of income, up from 66.5% in the same period of last year, and well above the bank's overall cost/income target of 70-73%. 

The poor quarter is likely to weaken the influence of UBS's investment bank when it comes to jostling for its share of the bank's overall bonus pool, which is down $300m on last year. The global wealth management division, run by the ever-ambitious Iqbal Khan, had a better three months: profits fell, but by a more moderate 4%.  

Cost are already being cut: $1bn of expenses are being taken out across the bank by 2023. There are signs that senior investment bankers are being removed. Jobs were cut in Hong Kong at the end of August and in Europe, Ranko Milic, head of CEEMEA DCM has quietly departed. Sources say there have been cuts in the US too. 

Last year, UBS's bonus pool was up 10%. 699 key risk-takers at the bank earned around $2.2m each.

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AUTHORSarah Butcher Global Editor

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