UBS Reduces Bonus Pool, Ermotti Pay in `Challenging Year'

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  • Bonus pool declines by 17% to 2.9 billion Swiss francs
  • UBS missed out on debt-trading rebound after shrinking unit

UBS Group AG handed out the smallest bonuses in four years and lowered Chief Executive Officer Sergio Ermotti’s payout as profit slumped last year.

The bank cut the bonus pool for 2016 by 17 percent to 2.9 billion Swiss francs ($2.9 billion), according to its annual report published Friday. Ermotti, 56, remains the highest-paid executive at the Zurich-based lender, with a total compensation of 13.7 million francs, down from the 14.3 million francs he received in 2015. That includes 10.9 million francs in variable compensation for his fifth full year in the top job.

Sergio Ermotti

Photographer: Michele Limina/Bloomberg

Market volatility at the start of 2016 took a bite out of UBS’s profit and the bank then missed out on a debt-trading bonanza, largely as a result of its post-crisis strategy. Andrea Orcel, who heads the securities unit, has said the bank pays for performance and while 2016 was “not bad,” it wasn’t as good as the prior year, when performance compensation was boosted across the group.

“2016 was another challenging year for the industry and UBS, marked by macroeconomic uncertainty, geopolitical tensions and divisive politics, which adversely affected client sentiment,” Ermotti and Chairman Axel Weber said in a letter to shareholders provided in the report.

Weber received 6.1 million francs for 2016, in line with the previous year, according to the report.

Earnings Restated

UBS restated earnings for the full year after reaching an agreement in principle this month with the National Credit Union Association to settle a case relating to mortgage backed securities before the financial crisis. That cut net income for 2016 by 102 million francs to 3.2 billion francs. The bank restated its pretax profit to 4.1 billion francs, compared with 5.5 billion francs in 2015.

The bank declined to comment on the total amount it will pay in the settlement. UBS is one of a few European lenders that hasn’t resolved an investigation into the sale of residential mortgage-backed securities before the financial crisis. It’s weighing letting the case go to court if the U.S. asks for more than UBS is willing to pay, people familiar with the matter said this week.

UBS in 2012 moved to pare back much of its fixed-income business and focus on wealth management. The latter suffered last year from a reluctance among the very rich to put their money to work in investments because of uncertainty over the direction of markets.

Deutsche Bank

The bank’s bonus pool is tied to several performance indicators, including capital strength and some profitability measures. The last time the pool was smaller was in 2012, when it decided to cut large parts of the investment bank and was fined for trying to rig global interest rates. It awarded 2.5 billion Swiss francs in bonuses for that year.

Employees at other banks also are looking at smaller checks this year. Hit by legal expenses, Deutsche Bank AG slashed its 2016 bonus pool by almost 80 percent, a figure unmatched in its recent history. HSBC Holdings Plc and Barclays Plc cut their bonus pools 12 percent and 1 percent respectively. Credit Suisse Group AG has yet to disclose its pay for 2016.

UBS has put base salaries for its investment bankers on hold until later this year because it wants to see first what the competition is doing, people with knowledge of the matter have said.

Orcel told employees in January that the bank has no plans for a major expansion in areas that consume a lot of capital such as rates and credit trading. He praised the performance of the equities division in the fourth quarter and said cost cuts and adjustments to the bank’s model will help competitiveness.