UBS Says Volatility Hurting Wealth, Investment Bank Units

  • CEO says client activity `recovered somewhat' in first quarter
  • Transaction-based revenues have not rebounded to normal levels

UBS Group AG’s wealth management and investment-banking businesses failed to recover in the first quarter as “challenging” conditions continued into this year, Chief Executive Officer Sergio Ermotti said.

“The conditions we noted in our most recent outlook statement have persisted throughout the quarter,” Ermotti said at a conference in London on Wednesday. The bank has a “very tough year-on-year comparative from revenue standpoint of view” at the securities unit, with revenue boosted by equities and currencies in the first quarter of 2015, while market volatility is undermining wealth management, he said.

Banks around the globe have been hurt by record-low interest rates, plunging oil prices and cooling emerging-market growth, with Jefferies Group reporting on Tuesday that revenue from trading stocks and bonds tumbled 82 percent in its fiscal first quarter. Speaking at the same conference, Deutsche Bank AG co-CEO John Cryan forecast an unprofitable year, while Societe Generale SA CEO Frederic Oudea said there may be a need to speed up cost cuts.

“While client activity has recovered somewhat from the lows we saw in the fourth quarter, transaction-based revenues have not rebounded to levels typically seen in previous first quarters,” Ermotti said.

UBS shares declined as much as 5.9 percent, the biggest drop in more than a month, trading at 15.77 Swiss francs at 4:59 p.m. in Zurich, down 4.8 percent. They have decreased about 19 percent this year, while Deutsche Bank is down 24 percent.

The wealth-management unit, the lender’s largest, had pretax profit of 344 million Swiss francs ($348 million) in the fourth quarter, down 47 percent from a year earlier, with 3.4 billion francs in net new money outflows. Ermotti said that the Zurich-based bank remains focused on “quality over quantity” when it comes to attracting new money.

Ermotti signaled that revenue at the securities unit declined from a year earlier, when currency income was boosted by the Swiss central bank’s surprise decision to remove its franc ceiling as well as equities trading in the Asia-Pacific region.

“We also have a very tough year-on-year comparative from a revenue standpoint,” Ermotti said, when commenting on the investment bank. Activity levels across the advisory industry have “slowed markedly,” while in the equities business, “flat volumes in Europe and sharp declines in Asia do not favor our geographic mix,” he said.

‘Challenging Conditions’

The investment bank, run by Andrea Orcel, reported a 63 percent drop in pretax profit to 80 million francs in the fourth quarter, a period previously described by Ermotti as the “most challenging” in several years. The unit reported a return on equity of 4.4 percent in the three months through December, below the cost of equity that many analysts estimate at 10 percent.

“In challenging market conditions like those we have seen this quarter, we would consider performance to be satisfactory if the investment bank covers its cost of equity,” Ermotti said. “I’m confident we will be able to achieve this” for the first quarter.

While UBS remains committed to return at least 50 percent of net income to shareholders, it doesn’t expect to pay a special dividend this year, according to Ermotti.

“Although it’s early in the year, our aim is to continue to grow our ordinary dividend, while building over time the capital needed to address regulatory requirements and to support our growth,” he said.

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