UBS executives are considering cutting the group’s bonus pool in an effort to recoup some of the $2.3bn it lost in the alleged trading scandal centred on Kweku Adoboli.
The Swiss bank last month opted not to eat into bonus accruals when it reported its third-quarter earnings. The approach, which meant that 90 per cent of the investment bank’s SFr1.35bn of third-quarter revenues was set aside for pay and bonuses, was widely criticised. Analysts said that it appeared the bank was seeking to push the cost of the trading scandal on to shareholders rather than its own employees.
But Sergio Ermotti, the bank’s chief executive, has now told the Financial Times that there was “no way” bonuses would be unaffected by the shock trading loss, allegedly racked up by a low-level trader in London. The decision could end up cutting the year-end pay and bonus pool within the investment bank – worth SFr4.6bn ($5bn) as at the end of September – by as much as 10 per cent, according to some estimates.
“The only debate you can have nowadays in our bank is how do you factor the $2.3bn loss into the bonus pool,” Mr Ermotti said.
Mr Adoboli, a trader on UBS’s “Delta One” desk, is expected to enter a plea this week on four counts of fraud and false accounting in connection with the incident. UBS claims that he ran up more than $2bn in losses in a matter of weeks last summer by placing a small number of unauthorised bets on the future movement of various stock market indices.
Oswald Grübel, UBS’s outspoken chief executive, stepped down in September at the height of the scandal, to be replaced by Mr Ermotti on an interim basis.
Mr Ermotti, a former investment banker at UniCredit and Bank of America Merrill Lynch who only joined UBS in April, was named permanent chief executive last week, in advance of a critical strategy presentation in New York.
Mr Ermotti said one option being discussed with UBS’s board was taking a specific lump-sum hit to the bonus pool at the year-end, rather than clawing back previous years’ bonuses or lowering pay-outs over several years.
“Maybe that is something we are going to have to do,” Mr Ermotti said in an interview.
“We have to take a huge bet that our people will stay on ... They will say, because 20 or 30 people – maybe as high as 50 people – didn’t supervise this business properly, now I am penalising, de facto, the other 64,950 employees. Which is OK, the rationale can be understood. But it’s going to be difficult to sell to our employees.”
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