European investment banks pay less in bonuses: Barclays' research

[LONDON] Four of Europe's major investment banks have reduced their bonus awards by a third since 2009, but deferred bonus payouts, which came in after the financial crisis, are on the wane, Barclays research analysts said in a note on Thursday.

Bonus awards at Credit Suisse, UBS, Deutsche Bank and Barclays fell to 11 billion euros (US$12.53 billion) in 2015 from 16 billion euros in 2009, or to 37 per cent of base salaries from 72 per cent, according to the research.

Big banker bonuses were blamed for encouraging risk-taking and contributing to the 2008-2009 financial crisis. Under a European Union cap, bonuses cannot now exceed 100 per cent of bankers' fixed salary, or twice that amount with shareholder approval.

But banks have topped up basic pay by awarding allowances to senior staff and also increased fixed salaries in some cases. As a result, many shareholders have urged further pay cuts to help to improve returns at European banks, which are still restructuring to try to revive profitability.

Deferred pay also became commonplace soon after the crisis as regulators wanted to make sure bankers whose high-risk trades went sour would not be rewarded with cash bonuses. It also provided a way for banks to push their bonus costs into the future.

But Barclays' research said that the proportion of bonuses that are deferred, which was 39 per cent in 2015, has been falling because pushing the expense into the future has become an unwelcome accounting inflexibility.

Credit Suisse, for example, had to expense 1.1 billion Swiss francs more in 2015 from previous years' deferred bonuses than in the current year, equivalent to 9 per cent of 2015 staff costs, Barclays' research said.

The research also showed that among the big four, UBS has begun to buck the overall downtrend in bonus payments. The Swiss bank has increased bonus awards in its investment bank in successive years from a nadir in 2011-12, when it announced a restructuring plan. Its bonus pool has risen to 3.2 billion euros in 2015 from 2.1 billion in 2011, equating to 56 per cent of base salaries from 37 per cent.

Total investment banking revenues at UBS, Credit Suisse and Deutsche Bank have fallen a third to 30 billion euros in 2015 from 45 billion euros in 2007, while costs have fallen to just over 20 billion euros from 30 billion euros, according to Barclays' research.

REUTERS