Bleak times for investment bankers with few options

Marc Sidwell
Follow Marc
UBS Investment Bank – A winning partnership” it says on the Swiss financial services firm’s website. It might want to rethink that slogan after it announces a much-anticipated programme of cuts this week. They are apparently set to stretch over three years and remove some 10,000 jobs or almost a sixth of its global workforce. In particular they look set to take a hatchet to UBS’ fixed income division, with the axe likely to fall hardest in London, all in a desperate effort to shrink back the investment bank and concentrate on areas where UBS thinks it has a chance of, well, winning – especially with the Kweku Adoboli case still rumbling embarrassingly along.

Those left at UBS might just find themselves enjoying in the medium-term the benefits of its restructuring into a stable business with more focus on high-end investment advice, assuming the firm can generate sufficient return on equity as a result of turning its back on the high stakes world. Meanwhile its seismic decision will leave bigger players positioning themselves to take advantage of the business – and talent – UBS is offloading.

For investment bankers, it’s clear this crisis is not over yet. Just as UBS is poised to start cutting jobs, Barclays is said to be looking at slashing top salaries in half.

The fact such an option is being considered is proof of how tough market conditions are right now, and of how widespread the pain is. Revenues per banker have fallen because of the downturn – and because banks are having to hold more capital, the profitability of operations has fallen even more sharply. Individual bankers have less leverage in terms of their ability to move elsewhere, especially now with thousands more about to be added to the pool of available talent.

That said, in Barclays’ case, the cuts may be less painful than they sound. Using 2011 figures, if a top salary of £700,000 (only awarded to the top eight executives) was cut by 50 per cent, when combined with maximum bonus and long-term incentive payments that would amount to a cut in annual rewards of only 10 per cent – still significant, but hardly as headline-grabbing.

The irony of course is that investment banking salaries have been pushed up the more bonuses have come under pressure. As, for instance, when RBS revealed in February that bonus cuts last year had been largely offset by increases in basic pay. It’s not so clear that the pendulum will now swing back the other way – with salaries down but bankers less mobile, bonuses won’t necessarily see a compensating rise.

Barclays is taking in some ways a bleaker gamble than UBS, which is simply admitting it was playing in the wrong league. By betting on the idea that its staff won’t be able to vote with their feet, it is staking out its belief in the sector staying depressed for the immediate future. That’s not a bright message whether you still have a job or not.