UBS to Pay Bankers Bonus Bonds That Can Be Wiped Out, FT Reports

UBS AG, Switzerland’s biggest bank, will award bonuses to 6,500 senior bankers in the form of bonds that can be wiped out if the company doesn’t meet capital standards, according to the Financial Times.

The program to benefit UBS’s highest-paid employees would make the Zurich-based lender the first to follow recommendations of European banking regulators, the newspaper reported, citing unidentified people close to the situation whom it didn’t identify. The lender is scheduled to report fourth-quarter results today before the market opens.

Senior bankers should be required to receive some annual bonuses in bonds that would suffer losses during a financial crisis, the European Banking Authority said in December. A “mandatory share” of bonuses for top management should be paid in so-called bail-in bonds, which can be written down when capital dips below a safe level, the regulator said in an opinion on proposals to separate banks’ commercial and investment units.

The debt bonuses awarded by UBS will be wiped out if the bank’s regulatory capital falls below 7 percent or in the case of a “non-viability” loss, the FT reported. The changes, to be announced today, will apply to the current bonus pool, which will fall by at least 5 percent on top of the previous year’s 40 percent cut, according to the newspaper.

Karina Byrne, a UBS spokeswoman in New York, declined to comment on the FT report.

Hurt Returns

UBS, led by Chief Executive Officer Sergio Ermotti, 52, is restructuring as tougher capital requirements and sluggish client activity hurt returns. The company said in October it will cut about 10,000 jobs as it scales back in investment banking to focus on its wealth-management business, the world’s second-largest.

The lender may post a net loss of 2.16 billion Swiss francs ($2.38 billion), compared with a profit of 319 million francs a year earlier, according to the average estimate of 12 analysts surveyed by Bloomberg. The estimates ranged from a loss of 2.31 billion francs to a loss of 2.07 billion francs.

UBS also is seeking to resolve regulatory probes and bolster internal controls. The lender was fined $1.5 billion in December by U.S., U.K. and Swiss regulators for trying to rig global interest rates. The previous month, U.K. authorities imposed a 29.7 million-pound ($46.8 million) penalty and Swiss regulators said it may have to increase capital levels for operational risks after a $2.3 billion loss from unauthorized trading.

Andrea Orcel, the 49-year-old CEO of the investment bank, said at a parliamentary hearing in London last month that UBS is in the process of rooting out “negative elements” of its corporate culture.

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