Bonuses see staff costs surge at UBS Warburg

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UBS Warburg, the London-based investment bank, yesterday said costs had surged in the second quarter compared with last year due to bumper bonuses for employees and a recruitment drive for more staff.

UBS Warburg, the London-based investment bank, yesterday said costs had surged in the second quarter compared with last year due to bumper bonuses for employees and a recruitment drive for more staff.

It said costs increased by £300m, or 27 per cent, to £1.1bn year on year, after the bank put aside funds to pay staff generous discretionary packages for the record level of growth in the first three months of the year.

Analysts as well as sales people and traders are expected to benefit from the bonanza, which is double UBS Warburg's profits before tax. The bonuses follow increases in corporate and private client business and will be paid at the end of the financial year despite pre-tax profits at the Swiss-owned City bank dipping 8 per cent to £505m compared with the first three months of the year. However, compared with the same period last year they were up 177 per cent.

The bank, which with 6,000 employees is already one of the largest investment banks in London, said it was increasing staff numbers in Europe. A spokesman said: "The roll-out will be evenly spread between our centres in London, Germany, France and Italy as we want to expand on continental Europe as well as maintaining a strong position in London."

In contrast to the UK business' expansionary mood, its parent, UBS, the Swiss banking giant, reported a fall in its level of business. Total assets under management dropped by 3 per cent to SFr1,711bn (£690bn), due to depressed trends in the market as a whole and to client losses. The group predicted this setback last month when it announced plans to buy the US broker PaineWebber for £7.2bn as part of its goal to gain more of a presence in America.

Luqman Arnold, chief financial officer, said that the downturn would not be immediately reversed: "The outlook for institutional net new money remains modestly negative but continues to moderate." UBS shares fell 1.7 per cent to SFr259 following the results.

Personnel levels in the whole group were also cut in its private and corporate clients business division, to fight rising costs. Operating costs, nevertheless, increased by 25 per cent to £1.5bn. The group blamed fluctuating currency exchange rates for the rise as well as an extra payment it had to make to the Holocaust survivors fund being financed by Swiss banks. UBS is responsible for two-thirds of the £800m fund.

However, yesterday the group said it would not be making any more purchases that were on the same scale as that deal, which is expected to be completed in November.

The move will take the pressure off rivals, who are all battling to slice up the US market while dealing with a market that is less expansionary than at the beginning of the year.

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