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UBS cuts 2011 bonus pool by 40% as profits plunge

Investment banking unit reported a pre-tax loss of Sfr256m in the fourth quarter against profits of Sfr100m at same stage previous year

Swiss bank UBS warned of a gloomy start for 2012 as it announced a 40% cut in its bonus pool from a fall in profitability and the alleged rogue trading incident that had caused £1.4bn of losses.

Carsten Kengeter, the head of investment banking, is waiving his potential multimillion-pound bonus for 2011 as it was his arm of the business that incurred the loss caused by Kweku Adoboli, who is in custody ahead of a trial in September. The 31 year old former star has pleaded not guilty to four counts of fraud and false accounting.

Within the investment bank, which is a large employer in the City, the bonus pool was down 60% to about Sfr830m (£570m) to take the brunt of the losses that the bank incurred from the alleged rogue trading. The bank stressed that revenue in the investment bank was down 25%.

The total bonus pool stood at SFr2.6bn – compared with SFr4.2bn – down 40%. However, under international accounting rules which require bonuses from prior years to be included, the bonus pool was down 17% to SFr3.4bn.

In the fourth quarter, the investment bank, which is being shrunk to move away from riskier activities, reported a pre-tax loss of Sfr256m – against pre-tax profit of Sfr100m the same time a year earlier, which the bank said was reflection of lower revenues across all business areas.

Overall, the group’s pre-tax profits for the whole of 2011 were SFr5.5bn, down 27%.

Sergio Ermotti, who was appointed chief executive after Oswald Grübel resigned in the wake of the Adoboli incident, said Kengeter had told him he did want to be considered for a bonus soon after the rogue trading incident was uncovered in September.

But he stressed that shareholders were now getting a dividend – albeit of just SFr0.10 a share – the first since 2006 after the bank was one of the biggest casualties of the credit crunch and banking crisis.

The bank cited “ongoing concerns surrounding eurozone sovereign debt, the European banking system and US federal budget deficit issues, as well as continued uncertainty about the global economic outlook in general” as ensuring a slow start to 2012. “Such circumstances would make sustained and material improvements in prevailing market conditions unlikely and would have the potential to generate headwinds for revenue growth, net interest margins and net new money. In light of the above, traditional improvements in first quarter activity levels and trading volumes may fail to materialise fully, which would weigh on overall results for the coming quarter, most notably in the investment bank”.

Before Ermotti took the helm, the bank had announced plans to cut 4,000 jobs – some 1,101 were lost in the fourth quarter. He also said the bank would look for “strategic changes in the firm’s organisational design and structures” to achieve further cost reductions. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds