UBS bankers' exceptional quarter amidst rampant cost-cutting
This time last year, things were not going well for UBS’s investment bankers. In the third quarter of 2022, combined M&A, ECM and DCM revenues at the bank were down 58%. There was talk about hiring some new M&A bankers as a result, particularly those “stuck in a rut” at rivals.
One year on, UBS has rescued Credit Suisse’s M&A bankers from their rut and in M&A at least, things are looking good. M&A revenues at the bank were up 40% year-on-year in the third quarter. UBS notes that M&A revenues across the market were down 33%.
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While UBS’s newly invigorated M&A team is roaring ahead, though, it’s doing so against a challenging backdrop. After spending $2bn integrating Credit Suisse, UBS registered a $785m loss in Q3, compared to a $1.7bn profit in the same period of last year.
Costs have already been cut and there are plenty more cuts to come. UBS reduced its run rate by $3bn year-on-year in the first nine months of 2023 and it aspires to achieve $10bn in gross cost saves by 2026. In two years’ time, UBS aspires to have an underlying cost ratio below 70%. It’s currently 89.3%. There’s a long way to go.
Many of the cuts are coming in the form of headcount reductions. Including contractors, consultants and When contractors, consultants and outsourced employees are included, UBS has cut 13,000 people so far this year. 3,119 people were cut in the third quarter.
More job cuts are likely, but people are being assimilated too. Credit Suisse employees are being “onboarded” onto UBS platforms and $1bn of the recent integration expenses were the result of “awards granted to employees to support retention and operational stability, severance expenses, and the alignment of Credit Suisse processes to the UBS variable compensation framework.” A further $1bn of total integration expenses are expected in the fourth quarter.
Will UBS’s outperforming M&A bankers be paid for their fine performance? It seems unlikely in the circumstances. Year-to-date, their revenues are down 1%, which is also better than the market but is off a particularly low base. Fixed income traders at the bank won't be competing for a share of the bonus spoils – their revenues were down 37% in Q3 compared to last year.
UBS is making provisions for paying people. It accrued higher variable compensation in the third quarter. For the full nine months, variable compensation accrual – or bonuses – are down on last year. Last year's bonuses weren't great either.
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