Weak pay control adds to grim investment bank Q4

LONDON Feb 17 (Reuters) - A failure to get to grips with staff pay and the cost of reshaping businesses added to grim trading activity and dragged Europe's top investment banks to a collective 1.6 billion euro ($2.1 billion) loss last quarter.

Results are in from six of Europe's leading investment banks and four fell into the red in the final three months of last year, with Credit Suisse's 1.3 billion Swiss franc ($1.4 billion) loss the worst of them.

"Expectations were low but they managed to fall a bit short even on those," said Matthew Czepliewicz, analyst at Collins Stewart. "The shortfalls were mostly at Deutsche Bank , UBS and Credit Suisse, and it was more a disappointment on the cost control side."

Poor results had been expected as U.S. rivals had already shown that the euro zone debt crisis hammered bond trading and deal activity. But the results confirmed that banks are getting hit on a number of fronts and life is set to stay tough.

Bonuses are estimated to have fallen by about a third across the industry, but overall pay has not fallen as much as revenue.

Compensation at UBS and Credit Suisse investment banks were still lofty at 63 percent and 58 percent of revenues last year, while average pay for Deutsche's investment bankers was 332,785 euros in 2011, down 12 percent on 2010.

One bright spot is that this year has started well.

"They all had a tough fourth quarter, but almost all of them talked about a better start to the new year. UBS was the only one that was more measured," said Jon Peace, analyst at Nomura.

The first quarter should bounce back from the previous two quarters, but will struggle to match the bumper first quarter of 2011, analysts said. Banks are hoping a strong start to the year doesn't fade, as it did last year.

"When banks are trying to be constructive on the outlook, they are betting the second half of the year will be a lot better," Peace said.

But recent results showed investment banks are coming under pressure from many sides -- regulation, politicians and the troubled euro zone economic backdrop.

French and Swiss banks were hit hard by their efforts to cut their size, incurring costs and losing revenue.

UBS's under-fire investment bank sank to a 256 million franc loss and Deutsche Bank's unit lost 138 million euros in the fourth quarter.

Societe Generale suffered a 418 million euro hit from past U.S. credit market exposures to drag it to a 482 million euro loss for the quarter.

The two best performances were from BNP Paribas and Barclays Capital, analysts said.

BarCap made a 267 million pound profit, albeit that was down three-quarters from a year earlier and its income sagged to its lowest for three years. BNP Paribas eked out a small 6 million euro profit as its revenues held up better than rivals.

Other bright spots included a decent performance by Deutsche's equities arm and BarCap and UBS showed strong growth in advisory business over the previous quarter.