In an attempt to retain its investment banking staff, UBS AG ( UBS ) is set to increase investment bankers' salaries by 9% on an average basis. The Swiss Banking giant is bracing to raise base salaries of client-facing investment bankers by approximately 25%.
The move is a turnaround from the company's target of expense savings of around CHF 5.4 billion ($5.7 billion) by the end 2015 and its plans to slash almost 10,000 jobs mainly in the fixed income trading business. However, the salary hike will not be enforced throughout the investment banking unit, but only at areas where the bank lacks rivals.
Despite the increment, the investment bank's total compensation costs are not likely to rise, as the bonuses paid out are declining
UBS had long been in the shadow of major U.S. banks such as JPMorgan Chase & Co. ( JPM ), Morgan Stanley ( MS ) and The Goldman Sachs Group, Inc. ( GS ) in average compensation for senior executives. Hence, this pay rise is seen as an effort to bring remuneration in line with industry standards, particularly with that of the U.S. banks. Moreover, the company's proposal to increase base salaries comes in the wake of regulators, including those in the U.K., imposing a limit on paying cash bonuses to bankers.
After reporting 2 successive quarterly losses in the second half of 2012, UBS returned to earnings in first-quarter 2013, riding on higher revenues at the investment bank and wealth management units. Notably, the investment banking unit reported a pre-tax profit of CHF 977 million ($1,050.5 million) in the said quarter, versus a loss of CHF 243 million ($260.9 million) in the prior quarter.
UBS was one of the major banks to have been adversely hit by the eurozone crisis. Given its declining revenues, the company was forced to reduce its costs through retrenchments.
However, we believe that prudent business model changes, along with the aforementioned remuneration hike can reinstate the company's competitive edge.
UBS currently carries a Zacks Rank #2 (Buy).