UBS profits slide as investment bank struggles

Via Financial Times

UBS reported a drop in third-quarter profits, as income from its investment banking business more than halved even as its wealth management business proved resilient.

On Tuesday, the Swiss lender posted a group net profit of $1.049bn, down 16 per cent from a year ago, but beating analysts’ expectations of $971m.

UBS, like its European rivals, has struggled with mounting headwinds, including the impact of global trade disputes, new capital regulations and negative interest rates.

Sergio Ermotti, the chief executive, has already put the bank in what he calls “fuel saving” mode in response to a disappointing run — freezing hiring, slashing bonuses and delaying spending on technology projects. UBS’s results will set the tone for the rest of Europe’s lenders, which report over the next two weeks.

However, profits remained relatively stable at UBS’s $2.5tn wealth management business, despite continuing pressure on margins from the Swiss National Bank’s negative interest rate policy. Adjusted pre-tax profit at the division dropped fractionally to $919m compared with $936m in the third quarter of 2018, comfortably beating analysts’ expectations of $857m. Shares in the bank rose 2 per cent in early trading.

Kian Abouhossein, an analyst at JPMorgan, said: “UBS continues to have the best wealth management franchise, best business mix in a new regulatory regime. More importantly, it has illustrated its potential after some underperformance relative to peers in the recent past.

“Although the investment bank performance is relatively weak compared to US peers, we have to take into account business mix and geographical focus and expect Europeans to lag US peers, yet again, generally.”

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About $15.7bn of net new money flowed into the Swiss lender’s wealth management business in the quarter, driven largely by new allocations from rich clients. Over the summer, UBS hired Iqbal Khan from arch rival Credit Suisse as co-head of the wealth division. However, his move has been overshadowed by an ugly neighbourhood dispute with his former boss, Tidjane Thiam, that unleashed a corporate espionage scandal.

The impact of tougher conditions has been most starkly felt at its investment banking arm. Adjusted pre-tax profit for the division fell to $203m over the quarter, compared with $489m in the same period last year. The figure was well below analysts’ expectations, which foresaw a decline to $290m for the period.

The number does not yet include the cost of a significant restructuring in the division, being led by co-heads Piero Novelli and Rob Karofsky. The impact of the cost-cutting measures, estimated to be about $100m, will be taken in the fourth quarter.

The division has struggled since the high-profile departure of Andrea Orcel in September 2018, booking a surprise $47m loss in the fourth quarter of that year and reporting declines in year-on-year profits in the year to date.

Shares in UBS have fallen by 17 per cent in the past 12 months.