UBS Joins Goldman, Pressure On The Rest

IHT: UBS on Monday joined Goldman Sachs in saying its top executives would get no bonus this year, as public scrutiny of bankers' compensation intensifies amid the taxpayer rescue of the financial sector.

UBS said its chairman, Peter Kurer, chief executive, Marcel Rohner, and other members of the executive board would receive only their fixed salaries this year and that all other employees would have their 2008 bonuses reduced. The bank, based in Zurich, received a Swiss government bailout of about $60 billion in October after losing nearly $50 billion since the the credit crisis began last year.

UBS said that beginning next year, top executives would be paid according to a long-term compensation model that "rewards realized value creation and takes business risk into account." In profitable periods, the executives will be paid performance-based variable compensation, but in hard times, no bonus will be paid. In addition, it said, "a 'malus' can be deducted from bonus accounts" when performance merits.

UBS made the announcement a day after top executives at Goldman Sachs sent a request to the company's directors asking that they receive no bonus pay for their work in 2008, a company spokesman said. Their request was granted, he said.

The moves by UBS and Goldman Sachs turns up the heat on their competitors, including Morgan Stanley, to take similar action as they decide on year-end bonus figures in the coming weeks. Last month, Josef Ackermann, the chief executive of Deutsche Bank, announced that he would forgo his bonus this year as "a very personal sign of solidarity."

"We may see more of such bonus decisions at the top of the tree," said Andrew Oliver, managing director at Profile Search & Selection, an executive search firm in Hong Kong, on Monday.

The decision by Goldman Sachs could also ease political pressure and reduce adverse reaction to what is expected to be a bleak fourth-quarter earnings report in December, including perhaps the bank's first loss of the credit crisis. Goldman's bailout package includes some strictures on executive pay, but the industry does not view them as especially strong.

It comes after banks worldwide have been awarded or promised hundreds of billions of dollars in taxpayer bailouts. Numerous European officials, including President Nicolas Sarkozy of France and Angela Merkel, the German chancellor, have called for limits on bank executives' pay.

In the United States, public officials including the New York attorney general, Andrew Cuomo, and Representative Henry Waxman, a Democrat of California, have been warning banks not to use any taxpayer money to award bonuses to executives. Industry lobbyists and interest groups have also warned executives at the banks that any big pay numbers this year could generate a significant public backlash.

There is a widespread belief that the way Wall Street awarded bonuses in recent years helped feed the risky behavior that eventually created big losses on exotic debt securities and helped create the current crisis.

UBS acknowledged as much Monday, noting that a report it submitted in April to the Swiss Federal Banking Commission concluded that "disproportionately large risks" had been assumed within its investment bank and that the bonuses there, linked to earnings, "had not been sufficiently tied to the amount of assumed risk. In addition, the bonus payments were calculated based on short-term results, without sufficient appraisal of the quality or sustainability of those earnings."

Morgan Stanley and other banks are still formulating bonus figures. Morgan Stanley's chief executive, John Mack, took no bonus last year. Morgan Stanley, which took a loss in the fourth quarter last year but has been profitable all of this year, declined to comment Sunday. Morgan Stanley posted better results in the third quarter than Goldman Sachs.

In September, Goldman Sachs and Morgan Stanley transformed themselves into bank holding companies that take deposits, take less risk and are subject to more government oversight. That new structure may limit their ability to generate big profits, because they cannot use as much borrowed money to make big investment bets.

In the past several years, Goldman Sachs has posted some of the biggest profits and paid out some of the biggest bonuses in Wall Street history. The company's chief executive, Lloyd Blankfein, received a salary and bonus package last year worth $68.5 million.

Goldman Sachs paid its two co-presidents, Gary Cohn and Jon Winkelried, about $67.5 million each last year, more than most chief executives. All three will receive no bonuses this year.

Others forgoing bonuses at Goldman Sachs will include the chief financial officer, David Viniar, and the vice chairmen, J. Michael Evans, Michael Sherwood and John Weinberg.

p/s photos: Nok Ussanee Wattanathana

Blue Christmas For Finance Staff

CLSA Asia-Pacific Markets, the regional brokerage unit of Credit Agricole, asked 500 senior bankers and executives to accept pay cuts of as much as 25 percent next year to avoid getting rid of jobs.

The voluntary salary reduction program that was proposed for one-third of the staff last week would reduce basic pay by 15 percent to 25 percent starting in January. The participating employees would be paid the salary they forgo and may also receive a bonus payment, when profit meets certain targets. The proposed pay cut package is similar to the one offered by CLSA in 2003 when SARS led to faltering economies in Hong Kong and China.

Merrill Lynch & Co. has laid off 10% of staff in its Asia trading division and 10% of its Hong Kong employees, Ming Pao Daily News reported Tuesday, citing unnamed sources. Merrill Lynch has axed its Asia-Pacific structured finance and structured credit teams as part of its cull of 100 jobs in the region. Merrill Lynch has about 6,000 employees in Asia, hence the cuts have not been severe at all. In May when Merrill cut 4,000 jobs worldwide, Asian offices lost just 100 employees then as well.

Singapore-based Rajiv Garg, Merrill's head of structured finance for Asia ex-Japan, left the bank on October 21 with nine members of his team. Merrill has kept three structured finance bankers in Hong Kong and Korea to manage existing exposures, but they are likely to leave in a few months.

Last month, HSBC slashed 1,100 jobs in its global banking and markets division globally, including 100 jobs in HK, while UBS also made hefty cuts to itsu fixed income and real estate teams and those focused on China IPOs in the past few months.

Merrill Lynch & Co., UBS AG and JPMorgan & Chase Co. are telling senior bankers in Asia to fly coach on short-haul flights and reduce non-essential travel as they step up cost cuts, officials at the firms said.

UBS advised bankers this month to travel economy class for flights of up to five hours, two officials at the biggest Swiss bank said, asking not to be identified because it’s an internal policy. Merrill employees have been told to travel economy for flights of as much as three hours since mid-September, two executives at the firm said.

JPMorgan, the biggest U.S. bank, has requested senior bankers fly economy on flights of less than three hours since late August, said an official who declined to be identified.

Royal Bank of Scotland Plc, which ceded majority control to the UK government this month, in an Oct. 16 memo asked workers worldwide to fly economy on regional routes and to cut back on travel.

HSBC Holdings Plc.’s Asia unit asked its Hong Kong department heads and branch managers to cut travel expenses by 15 percent to 20 percent next year, two officials at the bank said, citing a Sept. 23 memo sent by Chief Operating Officer Jon Addis.

HSBC is recommending China Eastern Airlines Corp., the country’s third-biggest carrier, over Hong Kong Dragon Airlines Ltd. for business trips to Shanghai, the memo said, according to the people. Europe’s biggest bank by market value cut 1,100 jobs at its global banking and markets division last month.

A round-trip business class ticket from Hong Kong to Shanghai with Dragonair costs HK$6,110 (US$788), excluding tax, almost double the best coach fare. An economy class traveler on China Eastern would pay HK$2,650.

p/s photos: Nozomi Sasaki