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Money-losing UBS under fire for lavish bonuses

Malcolm Curtis · 6 Feb 2013, 11:10

Published: 06 Feb 2013 11:10 GMT+01:00

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UBS on Tuesday reported the massive loss, much of it attributable to fines from the Libor rate fixing fraud and to restructuring costs relating to job cuts.

But the bank also announced major bonuses and recommended a 50 percent increase in its dividend to 15 cents a share.

“Good work is rewarded, poor work is penalized — that’s one of the rules dictated by our capitalism,” articles published online by French-language 20 Minutes and the German-language 20 Minuten, highlighting the plum bonuses, say.

“But the reality is different.”

The bank announced that it has changed its way of awarding bonuses to link them with performance.

But “what seems like a better step toward a better distribution of payments between shareholders and managers hides in reality apparent advantages for the managers,” 20 Minutes says.

“For these managers are compensated whether or not the bank gains or loses billions.”

UBS’s share price is only a fifth of what is was in the fall of 2007 before the financial crisis that led to the bank's near collapse — and a bailout by the federal government.

While 80 percent of the value of the bank’s stock “vanished into thin air”, UBS managers continued to reward themselves with lavish bonuses, the newspapers charged.

The bank in a statement issued on Tuesday said its “performance award pool” — otherwise referred to as bonuses — was reduced by seven percent in 2012 to 2.5 billion francs from the previous year, when it earned a net profit of 4.1 billion francs.

This is the lowest level since the financial crisis and 42 percent below the 2010 level, UBS said.

The bank said it introduced major changes to its pay system “to better align employee and shareholder interests”.

The changes mean that only a small portion of bonuses will be paid in cash — 20 percent for top executive members and 40 percent for other managers.

Cash payments will be limited to a million francs per manager with amounts in excess of that paid after three to five years “and only if the profits prove sustainable,” UBS Chairman Axel Weber told a press conference on Tuesday.

The rest will be paid in shares and “contingent convertible bonds”(CoCos), which pay annual interest.

However, the CoCos are only redeemable after five years provided the bank hasn’t lost value.

Weber said that if such bonds had been used for bonuses for the years between 2003 and 2008 all of them would have been worthless and the bank would have been spared paying out billions of francs.

The convertible bonds will be issued to around 6,500 top managers at the bank who earn more than 225,000 francs a year.

Managers will also be required to hold shares issued as part of bonuses for 4.5 years before they can be sold, up from 2.7 years.

The new system drew a skeptical reaction from 20 Minuten.

“The new UBS leadership that promises noble values and a rejection of ‘casino banking’ needs to answer the question of how billion-franc loss bonuses are justified.”

Malcolm Curtis (news@thelocal.ch)

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