UBS chief Sergio Ermotti gets pay rise as bank revises earnings

Sergio Ermotti, UBS's chief executive, received a pay rise in 2014 despite the Swiss bank revising down its fourth-quarter earnings because of legal provisions.

The bank's annual report showed a 4 per cent rise in pay for Mr Ermotti, who made SFr11.16m last year and was the lender's highest paid executive. His package included variable pay of SFr8.4m and a base salary of SFr2.5m.

UBS said Mr Ermotti's pay reflected his contribution to the bank's "strong performance" for the year, which was "tempered by charges for provisions for litigation, regulatory and similar matters".

Basic and variable pay fell 1.7 per cent across the bank's 60,155 employees, who made an average of SFr153,555 each, in a year when the bank's earnings rose 9 per cent.

The bank's admission on Friday that the quarter's earnings were SFr105m lower than previously reported unfazed investors and analysts, who pushed the bank's share price marginally up and described the revision as a "small number".

Banks in the US, including Morgan Stanley and BNY Mellon, have come under fire for revising downwards earnings figures they had previously reported. In Europe, where revisions tend to be of a lower magnitude than across the Atlantic, there is more tolerance.

"The restatement is not unusual around year end especially as it relates to legal provisions - Credit Suisse did exactly the same," Nomura analyst Jon Peace said of the revised figures in UBS's annual report. "If anything putting reserves into prior year makes future targets easier to hit."

Credit Suisse said last month that its fourth-quarter earnings were SFr277m less than previously reported, also because of legal charges. In the US, Morgan Stanley's fourth-quarter revision for legal issues was $2.6bn, BNY Mellon's was $600m.

Shares in UBS traded slightly higher on Friday and were up 0.75 per cent by 1150 GMT, reflecting the relatively small impact the extra legal charges had on the bank's revised full-year profits of SFr3.466bn. On a per share basis, the difference to earnings was SFr0.03.

"The additional amount booked by UBS is relatively small compared with what analysts expect over the next 2 years," said one analyst, pointing to the wave of litigation still faced by banks in areas such as foreign exchange rate manipulation and the mis-selling of mortgage-backed securities.

UBS's extra legal provisions stemmed from a March 2015 agreement to pay $135m to settle a case alleging collusion on foreign exchange transactions that was filed in US federal courts against the Swiss lender and several other banks in November 2013.

"We continue to be subject to a large number of claims, disputes, legal proceedings and government investigations," the bank noted in its section on risks. "We are not able to predict the financial and other terms on which some of these matters may be resolved."

Total litigation costs for the year came in at SFr2.594m, higher than 2013's SFr1.701m and slightly above 2012's SFr2.549m. The charges are a significant drag on bank earnings, sucking up 9 per cent of operating income in 2014.

Elsewhere in the 868-page report, the bank previewed a SFr377m one-off gain it will record in the first quarter of 2015 for the sale of a real estate property in Geneva, which sold for well over its balance sheet value.

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