The head of UBS has lashed out against regulators’ efforts to rein in bankers’ pay, arguing that the push is fuelled by envy among less well paid officials and risked stoking the populist backlash against capitalism.
Sergio Ermotti, chief executive of the Swiss bank, also complained that banking had been singled out for criticism over compensation in a way that other sectors, such as private equity and tech, had not.
“I think this discussion is made by people who are maybe frustrated that they do not make that kind of level of money,” the UBS boss said at the Financial Times annual banking summit on Thursday.
Mr Ermotti’s comments come amid renewed anti-Wall Street sentiment on both sides of the Atlantic where even mainstream politicians have taken aim at a sector that has returned to strong profitability as wages for average workers continue to stagnate.
Jeremy Corbyn, leader of Britain’s opposition Labour party, on Thursday warned that he would strictly regulate “speculators and gamblers who crashed our economy” if he became prime minister, arguing that bankers’ “greed plunged the world into crisis and we’re still paying the price”.
Mr Corbyn’s attack followed the publication of an analyst report by Morgan Stanley this week that the prospect of a Corbyn government may be “a bigger risk than Brexit”.
“Nurses, teachers, shopworkers, builders, just about everyone is finding it harder to get by, while Morgan Stanley’s CEO paid himself £21.5 million last year and UK banks paid out £15 billion in bonuses,” Mr Corbyn said.
Linking criticism of bankers’ pay to comments on the issue by Donald Trump, US president, who railed against Wall Street during last year’s presidential campaign, Mr Ermotti said: “This is trying to minimise the issues on a very populistic level.”
The UBS boss, whose board cut his pay slightly in 2016 to CHF13.7 million ($14 million), conceded that he was “very well paid”, but argued that banks needed to provide sufficient compensation packages to attract the best talent.
“If you basically say banks should pay much less, and you allow other parts of the economy like big tech or shadow banking to pay whatever . . . it’s [a] competitive [market],” Mr Ermotti said.
“People made a choice to do good for society while also getting their desired level of compensation,” he added. “They are going to do something else.”
Bankers’ pay has rebounded faster in the US than in Europe, where it has been held back by sluggish financial performance and regulation, including the EU bonus cap.
In the UK annual bonuses in the financial and insurance sectors increased 9.7 per cent to £15 billion in the year to March 2017, below the peak of £18.4 billion in the year to March 2008.
Bonuses in New York’s securities industry fell from an average of $190,000 just before the crisis to a low of $100,000 in 2008, before bouncing back to $146,200 last year, according to the Office of the New York State Comptroller.
UBS’s overall bonus pool, which is shared among 47,600 bankers, fell 17 per cent last year to CHF2.9 billion after its net profits fell 48 per cent to CHF3.2 billion.
Paul Tucker, former deputy governor of the Bank of England, triggered the debate at the FT conference by arguing that cutting executives’ pay would help banks become more profitable, a key demand from investors.
“If bankers were paid less, that would [help you to] cover your cost of capital. Why has pay not come down?” Sir Paul asked.
The exchange between the head of one of Europe’s biggest banks and the well-known former central banker exposed how the issue of pay levels in the industry remains divisive.
Audience members said they were surprised that Mr Ermotti had defended banker pay without acknowledging the issue of low profitability.
One participant said: “He didn’t appreciate this was a labour market question.” Another said: “He started with the right kind of response about competing for talent with private equity and tech companies. But then he just went on a tirade.”
Sir Paul, who left the BoE in 2013 and now chairs a US-based regulation advocacy group, said that bankers at UBS had enjoyed the benefits when times were good and the taxpayer had borne the losses when Switzerland’s biggest bank was bailed out in the crisis.
Mr Ermotti hit back by saying: “You should look at the facts. If anything, the taxpayer made CHF6.2 billion of profit. And people were not paid during those two years.”
Andreas Treichl, chief executive of Austria’s Erste Bank, tried to lighten the mood by joking that he was “paid less than the Goldman Sachs doorman”.
Additional reporting by Jim Pickard in London
Copyright The Financial Times Limited 2017
The Financial Times