A solid fourth quarter performance at UBS failed to recoup a steep fall in profits at the group’s investment bank over the last twelve months, with ultra-low interest rates and choppy markets leading to the Swiss lender missing its targets for 2019.
UBS reported net profit of $4.3bn for 2019, compared with $4.5bn in 2018, with income falling year-on-year from $30.2bn to $28.9bn, driven by punishing conditions in capital markets, with tough competition from rivals in the US, and lacklustre client activity worldwide impacting revenues.
Shares fell around 5 per cent in early trading.
The bank has been hit hard by the Swiss National Bank’s monetary policy. Interest rates in the alpine country have just entered their fifth year in negative territory, with many anticipating room for further cuts in 2020 should the central bank deem it necessary. Bern is anxious to hold down the value of the Swiss franc, which is under significant upward pressure thanks to easing in the US and the eurozone, and Switzerland’s traditional status as a safe haven for the world’s wealthy.
UBS’ investment bank saw its profits fall by nearly 50 per cent year-on-year, from $1.49bn in 2018 to $784m in 2019.
Profitability at the bank’s flagship wealth management division was more resilient, and increased slightly from $3.25bn to $3.4bn, despite a moderate fall in revenues for the division.
The bank’s new co-head of wealth management, Iqbal Khan — who joined amid a corporate spying scandal from rival Credit Suisse in October — has already set out plans for a radical shake-up of his division. UBS said it was targeting a 10-15 per cent profit growth in wealth management next year under Mr Khan’s new regime.
The bank reported a return on core capital of 12.4 per cent and a cost to income ratio of 80.5 per cent — placing it comfortably alongside peers, but failing to reach the targets of 15 per cent and 77 per cent set out by management.
UBS set more modest ambitions for 2020: it will now target a return on core capital of between 12-15 per cent and a cost to income ratio of 75-78 per cent, it said.
Strong performance in the fourth quarter — the most impressive for the last three months of the year since 2010 — did much to set UBS back on course after a troubling summer. Fourth quarter net profit, at $722m, was significantly above the fourth quarter of 2018, and beat analysts’ expectations. A rebound in business at UBS’ investment bank and asset management arms helped, though performance in wealth management was flat.
The bank proposed a dividend of $0.73 per share.