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Bonuses 'were out of control' at UBS
Robert Lea, Evening Standard21.04.08
Bonus schemes at giant, loss-making investment bank UBS were out of control and rewarding traders for huge bets irrespective of their outcome.
That is the conclusion of an internal report into UBS's $37 billion (£18.7 billion) credit-crunch losses that is set to have wide ramifications for the culture of huge bonuses on offer to bankers and traders throughout the City and Canary Wharf and up and down Wall Street.
UBS staff pay has soared by more than a third in the past two years to over $20 billion, and escalating incentive schemes were today identified as a key cause of the bank's record-breaking writedowns, currently the largest of any investment bank during the credit crisis.
UBS is culling thousands of jobs - with 900 of them going in London - as the report, released to shareholders today, admitted a root-and-branch failure to detect the huge exposure the bank had built up in the failed American subprime mortgage market
The unprecedented bout of soul-searching has led the Zurich-based bank to conclude the bonus scheme for hot-shot debt traders exacerbated its woes. UBS admits its traditional structure of locking in high-performing staff through future share payments, had been torn up in a bid to keep the traders chasing huge profits in the debt markets.
"Bonus payments for successful and senior fixed income traders including those in the businesses holding subprime position were significant," the report states. "Essentially, bonuses were measured against gross revenue with no formal account taken of the quality or sustainability of those earnings."
The report also found UBS was paying out large bonuses to traders irrespective of their "alpha" ability to create better-than-expected returns as opposed to those traders who simply used "carry trades" to make money by borrowing at a cheaper rates.
It found traders investing heavily in toxic CDO debt packages simply because they paid higher fees, rather than looking at how they might impact the bank.
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