UBS drops as profit slumps over securities businesses
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.