UBS Hired Brokers in U.S. With ‘Super-Sized’ Bonuses (Update3)

Feb. 3 (Bloomberg) -- UBS AG, the Swiss bank under investigation for allegedly helping wealthy Americans evade taxes, hired more than 200 brokers in the U.S. in the fourth quarter as it sought to counter client defections.

UBS hired a team of five in Dallas from Goldman Sachs Group Inc. with $4 billion under management, and a group of the same number from Morgan Stanley in Houston with $2.1 billion in assets, Karina Byrne, a spokeswoman for the Zurich-based bank, said in an interview yesterday.

The largest Swiss bank lured employees by offering signing bonuses of as much as 260 percent of the
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revenue the brokers brought in over the previous 12 months, said two people with knowledge of the matter who declined to be identified. By contrast, Merrill Lynch & Co. brokers were offered up to 100
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percent of the revenue they brought in to stay following the sale to Bank of America Corp.

“It was one of the more aggressive deals that we’ve ever seen in this industry,” said Rick Peterson, the president of Rick Peterson & Associates, a recruitment firm in Houston.

UBS, the world’s biggest manager of money for the rich, is trying to halt withdrawals at its private banking units after $48.6 billion of writedowns and losses and a probe into whether the bank helped 20,000 Americans dodge U.S. taxes. UBS has said it’s cooperating with the U.S. investigation.

‘Frustrated Brokers’

The bank is currently offering “industry-norm” bonus levels to new brokers of 160 percent to 200 percent of commission revenue, said Byrne, who is based in New York. The bank had “good hiring” in January, she said, declining to elaborate.

“We are paying market rate, and sometimes less, to top producing financial advisers,” said UBS spokesman Mark Arena. “Advisers who could go elsewhere on the same terms are choosing us.”

A top broker typically brings in at least $1.5 million in revenue a year, according to consultants.

Goldman Sachs spokeswoman Monika Schaller in Frankfurt declined to comment, as did Morgan Stanley spokesman Jim Wiggins.

UBS’s wealthy clients in the U.S. withdrew a net 14.7 billion Swiss francs ($12.7 billion) and the number of advisers at the unit fell by 340 people to 7,908 in the first nine months of 2008, company reports show. UBS expects new hires to bring over about 75 percent of their previous assets under management within the first 12 months, Byrne said.

Bonus Cuts

“Super-sized” bonus deals may alienate existing brokers at UBS and increase attrition, said Mindy Diamond, president of Diamond Consultants LLC in Chester, New Jersey. “They are going to have a lot of frustrated brokers.”

The incentives to add advisers contrast with a more than 80 percent cut in the 2008 bonus pool at UBS, excluding U.S. brokers. UBS, which announced 9,000 job cuts since October 2007, is under pressure in Switzerland to reduce executive bonuses after getting $59.2 billion in state aid to unload risky assets.

New hires are “most likely” to start paying off for the bank over four to five years, according to Peterson. “It’s a strong bet on the future of the U.S.”

UBS’s hiring efforts were probably helped by the upheaval in the U.S. brokerage industry, recruitment consultants said. New York-based Merrill agreed to sell itself to Charlotte, North Carolina-based Bank of America in September as Lehman Brothers Holdings Inc. collapsed. Last month, Morgan Stanley bought control of the Smith Barney broker unit of Citigroup Inc. for $2.7 billion.

Brokerage Talks

UBS held talks with Morgan Stanley last year over the sale of the U.S. brokerage unit, the Financial Times reported today, citing unidentified people familiar with the matter. The discussions were preliminary and are unlikely to be rekindled, the report said. In a separate report, the New York Post said UBS has held preliminary talks with Wachovia Corp., which was acquired by Wells Fargo & Co., about forging a venture between the companies’ broker units. A London-based UBS spokesman declined to comment.

The future of the U.S. wealth management unit within UBS is still in doubt, according to analysts. The division, consisting mainly of the PaineWebber business that UBS bought in 2000 for $11.5 billion, lost 1.74 billion francs before taxes over the past eight years, according to company reports.

“So far the integration into the overall wealth management franchise has not yielded that much of a benefit” for UBS, said Dirk Hoffmann-Becking, an analyst at Sanford Bernstein & Co.

To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net
Last Updated: February 3, 2009 12:10 EST

 

bfft like talking to the wall