UBS Outstrips Larger Trading Peers in Fixed Income Growth

UBS Group AG, the smallest presence in fixed income trading among global investment banks, posted the biggest revenue jump in the first quarter.

Sales from trading debt and currencies swelled 71 percent to 701 million francs ($753 million), a relative increase unsurpassed by other firms among the nine investment banks tracked by Bloomberg Intelligence. The trading boost contributed to an 82 percent increase in profit at the securities unit, the biggest gain among UBS’s key divisions in the quarter.

Chief Executive Officer Sergio Ermotti in 2012 set out to scale back the fixed-income trading businesses to focus on wealth management as regulatory demands for larger capital buffers made it difficult to compete. Since announcing the retreat, the bank has focused its business on managing money for the wealthy. Despite the surge in the first quarter, the investment bank contributed only 29 percent to UBS’s pretax profit.

Fixed-income revenue “is the highest they’ve had since the new model presentation,” said Jon Peace, an analyst at Nomura Holdings Inc. in London. “They are a leading player in foreign exchange. It was a good quarter for FX across the street because of enhanced volatility.”

Ermotti, 54, said the investment bank “deserves applause” not only for performance but also because the results were delivered without increasing risks. UBS had to take a bailout in 2008 after the bank suffered losses during the U.S. subprime crisis.

“Our strategy focuses on areas where we excel, and it is well-suited to the high volume and volatility environment we saw in the first quarter,” Ermotti said during a conference call.

Unprecedented stimulus by the European Central Bank sent the euro to a 12-year low as the region’s equities posted their best first quarter since 1998, with the Stoxx Europe 600 Index jumping 16 percent and the U.K.’s FTSE 100 Index also scaling new heights. The Swiss franc strengthened against all of its 16 major counterparts in the first quarter, gaining 15 percent versus the euro after the country’s central bank abandoned its currency cap.

A “massively higher” profit at UBS’s investment bank benefited from the “great fixed-income result,” said Andreas Venditti, a Zurich-based analyst at Vontobel Holding AG.

Activity was strong across the board. Revenue in equities rose 15 percent to 1.2 billion francs. The unit that advises companies on deals and underwrites securities offerings saw a 4 percent increase in sales.

While banks that haven’t changed their strategy so decisively since the financial crisis also profited from increased trading activity in the quarter, none of UBS’s big competitors topped its revenue growth. Goldman Sachs Group Inc. and Morgan Stanley, as well as Swiss rival Credit Suisse Group AG, all posted the highest revenue from fixed income trading in two years.

UBS still cautioned against expecting a repeat of the first quarter throughout the year.

“While our results for the quarter are very good, and I’m confident about our momentum, like we said at Q4, we wouldn’t multiply any quarter results by four,” Chief Executive Officer Sergio Ermotti said on a conference call Tuesday, referring to the bank’s overall performance.

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