As tension over Wall Street pay mounts, UBS raises compensation

Wall Street firms continue to maintain that government attempts to cap compensation will cause the best bankers to leave firms for smaller hedge funds and M&A shops or foreign banks not subject to U.S. regulation.

That argument got a shot in the arm as Swiss-based UBS (UBS) raised compensation for key staff.

According to Reuters, "Hundreds of UBS managing directors at the investment bank, with salaries of around 270,000 Swiss francs ($243,200) on average, were receiving 50 percent higher wages to compensate for the loss of usual bonuses." Count on U.S. firms to use the news to lobby Congress again on the issue of pay caps.

Given UBS's size both in the U.S. and Europe, it is unlikely that it would be so aggressive in pushing up salaries if it was not necessary for maintaining its investment banking business. The firm has suffered huge trading losses and increasing compensation could put pressure on future earnings.

The federal government may be creating a big problem for itself by insisting on pay restrictions. The weakest banks will rely on trading and investment banking to improve their profits as the economy recovers. If the people who have the best contacts and most skills in these areas are gone, the entire idea of making financial firms self-sustaining will be undercut.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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