UBS drops as profit slumps over se­cu­ri­ties busi­nesses

The Pak Banker - - COMPANIES/BOSS -

UBS Group AG dropped the most in more than a year af­ter profit at the wealth man­age­ment and in­vest­ment-bank­ing busi­nesses slumped in the fourth quar­ter.

At the wealth-man­age­ment unit, the bank's largest, pre­tax profit fell 47 per­cent to 344 mil­lion Swiss francs ($337 mil­lion) from a year ear­lier, while the in­vest­ment bank re­ported a drop of 63 per­cent to 80 mil­lion francs, the Zurich-based len­der said in a state­ment.

That's below es­ti­mates of an­a­lysts in a Bloomberg sur­vey. Chief Ex­ec­u­tive Of­fi­cer Ser­gio Er­motti, 55, has re­shaped the bank to fo­cus on wealth man­age­ment, shrink­ing the in­vest­ment bank, a model that's be­ing tested as mar­ket swings, cool­ing emerg­ing economies and a slump­ing oil price re­duce client trad­ing. The Swiss bank said it was hurt by "very low lev­els of client ac­tiv­ity and pro­nounced risk aver­sion" in the fourth quar­ter, with record-low in­ter­est rates and a strong franc adding to "head­winds" in 2016.

"Op­er­a­tively, it was an abysmal quar­ter in wealth man­age­ment and in­vest­ment bank­ing," said An­dreas Brun, an an­a­lyst at Zuercher Kan­ton­al­bank who down­graded UBS to mar­ket per­form from out­per­form. "It's in­com­pre­hen­si­ble to me why UBS is al­ter­nat­ing be­tween per­fect and aw­ful."

UBS shares dropped as much as 8.8 per­cent, the big­gest in­tra­day slump since Jan­uary 2015, and were down 7.7 per­cent at 12:06 p.m. in Zurich. They have de­clined about 21 per­cent this year, while the Bloomberg Europe Banks and Fi­nan­cial Ser­vices In­dex lost 18 per­cent.

Fourth-quar­ter net in­come rose 11 per­cent to 949 mil­lion francs, boosted by a tax gain of 715 mil­lion francs. The ful­lyear ad­justed re­turn on tan­gi­ble equity, a mea­sure of prof­itabil­ity, was at 13.7 per­cent, beat­ing a tar­get of about 10 per­cent. The bank ex­pects the mea­sure to re­main at about the same level this year.

On a call with an­a­lysts, Er­motti called the three months through De­cem­ber the "most chal­leng­ing" quar­ter the bank has ex­pe­ri­enced in "sev­eral years."

"No mat­ter how you look at it, risk aver­sion is still very high," he said. "Clients know they should in­vest more, but cash helps them sleep bet­ter at night. While the long-term out­look re­mains sound, they are ques­tion­ing the pre­dictabil­ity of to­mor­row."

At the wealth-man­age­ment busi­ness, pre­tax profit missed the 634 mil­lion francs pro­jected by an­a­lysts in a Bloomberg sur­vey. The gross mar­gin on in­vested as­sets fell 4 ba­sis points to 80 ba­sis points from the third quar­ter. The divi­sion had net money out­flows of 3.4 bil­lion francs, the worst per­for­mance since the se­cond quar­ter of 2010, when the bank re­ported out­flows of 5.2 bil­lion francs.

Fi­nan­cial firms have been rocked by tur­bu­lence in Chi­nese mar­kets, with plung­ing equity mar­kets prompt­ing au­thor­i­ties to in­ter­vene amid a deep­en­ing eco­nomic slow­down.

Asia's largest econ­omy has also been hurt by cap­i­tal out­flows and cur­rency volatil­ity as some in­vestors try to profit from gaps be­tween the on­shore and off­shore yuan rates.

UBS said that in­flows in Switzer­land and Asia Pa­cific partly off­set out­flows in the rest of Europe and emerg­ing mar­kets. The bank re­ported net new money in­flows in the Amer­i­cas, with "sig­nif­i­cant in­flows from newly re­cruited ad­vis­ers."

The bank is "com­fort­able" with its growth tar­get for net new money of 3 per­cent to 5 per­cent, Chief Fi­nan­cial Of­fi­cer Kirt Gard­ner said on a call with an­a­lysts. UBS ex­pects to reach a 1.4 bil­lion-franc sav­ings goal by mid-2016, with the group tar­get­ing net cost re­duc­tions of 2.1 bil­lion francs by 2017, he said.

"The re­sults are weak and given the start of the year, ex­pec­ta­tions are prob­a­bly go­ing to have to come down," said To­masz Grze­lak, an an­a­lyst at Mainfirst Bank AG in Zurich, who has a neu­tral rec­om­men­da­tion on UBS.

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