UBS will slash bonuses and eliminate more positions as a result of the now estimated $2.3 billion trading loss it has called “unauthorized,” according to observers. Apparently, the positions that resulted in the $2.3 billion loss were normal in size and appeared to be hedged, but the hedges were “fictitious positions.” As a result, there may be no bonus pool at all as well as sharp employee cuts. See Bloomberg article, “UBS Bonuses at Risk After $2.3B Trading Loss” (Sep 18, 2011).
Even before the debacle, UBS had announced 3,500 job cuts, 45% of that from the investment bank, after a 33% decline in profits the first half of this year.
After the 2008 credit crisis led to record losses, UBS reportedly obtained contractual clawback provisions that permit it not to pay bonuses when the firm or a unit is unprofitable.
“They will have to make pretty sharp employee cuts, 10 to 13 percent more than planned,” Jason Kennedy, chief executive officer of Kennedy Group, a London-based search firm, was quoted as saying.
“UBS wants to downsize its investment banking unit anyway and they were never going to pay big bonuses for 2011 in the first place,” Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets, was quoted as saying, adding: “With this trading loss there is now very good justification not to do so.”
This development is likely to have significant adverse impact on UBS employees. Many will face lose of their jobs while those who remain will be paid much less than anticipated because many Wall Street employees depend on bonuses for most of their annual income.
Page Perry is an Atlanta-based law firm with an active practice in representing individuals in employment disputes with firms in the financial services industry. In the past several years, the firm has won arbitration award for clients in employment disputes in the amounts of $1.7 and $3.9 million. For further information, please contact www.pageperry.com.