General Meetings of UBS and Credit Suisse (CS) are just around the corner. As in the past, the shareholders of the two major banks will continue to criticize the salaries of the Executive Board and the Board of Directors this year – and to reach the most the approval rate in one way or another is lower than expected. On the other hand, the likelihood that an application will be rejected is low, given the experience of recent years.
For one thing, the two banks can count on the support of their major shareholders. On the other hand, shareholders attending the General Assembly (GV) on the spot represent only a few percent of the vote. As a rule, the decisive factor is an independent proxy who uses the voting rights assigned to him in accordance with the instructions of the non-existing shareholders. In fact, the results of the voting were hardly significantly different, if only a proxy participated in the GS.
And yet: it would be strange to take the issue of compensation easily. In recent years, UBS and CS have massively cut their balances, in the interest of politicians and regulators, increased capitalization, reduced risks and reduced complexity of their business models. The withdrawal of Swiss business and asset management can really give the taxpayer a quieter dream, as the two major banks undoubtedly become more resilient to crises.
But profit in security is offset by a loss of growth and profit potential. In the Swiss business, the small domestic market and zero interest rates are the main limiting factors. In the wealth management business, commission income is under pressure, although the funds under management are increasing, indicating a decline in margins.
The erosion of revenue and margin pressure are manifested in the beneficial loss of the importance of the industry. The share of banks in total added value almost decreased by half of 2007 to just under 5% and is roughly equal to the contribution of insurance companies. In the same period, the volume of revenue of CS decreased by more than 40%, while UBS's share was reduced by only 6%. In the first quarter of this year, traditionally the most profitable annuals, unlike the previous year, the pressures on earnings in both big banks continued to increase and become more and more structural.
Quick climate change
This posture is likely to explain the massive losses in UBS and CS shares prices, which – considerably dilute – a decade after the financial crisis – are still below their pre-crisis levels. In other words, the shareholders, and therefore the owners of the two banks, felt the rapid climate change in the industry. It also applies to employees. Austerity and restructuring programs have reduced staff costs, which are estimated at three-quarters of the wages. On the other hand, corporate executives and their bosses are better able to protect their own acquis (see table). The reimbursement paid to members of the UBS Executive Committee and their boss has recently significantly exceeded the pre-crisis levels.
When comparing the two banks, a certain base effect should be taken into account. While UBS closed 2007 with a loss of billions and compensated its executive committee with a total of "just" 72 million Swiss francs, the CS waited with a profit of 7.8 billion Swiss francs and had a rain of 162 million francs to its management team,
The cardinal question
However, the cardinal question is: how can we justify that UBS and CS directors receive double-digit salaries for millionaires, although their banks are diminishing and less complex and faster business models pose less risks for managers? And why: Why the committees to compensate the two major banks in determining compensation packages based on a top group with names such as JP Morgan, Bank of America, Morgan Stanley, Goldman Sachs or Blackrock are larger, not only thanks to the huge domestic market and positive Interest rates on the dollar are significantly more profitable than the Swiss competition?
Sooner or later, even the most loyal shareholders will lose patience with their top employees, because something like growth can not be predicted in the present environment. The days when the General Assemblies were not much more than a legal Abnickersanstaltungen could come to an end.