UBS’ Q1 profit tumbles 64% amid market turbulence

ZURICH — Swiss banking giant UBS Group, whose biggest shareholder is Singapore sovereign wealth fund GIC, on Tuesday (May 3) reported first-quarter profit plunged 64 per cent as market turbulence eroded earnings at its wealth-management and securities units.

Net income declined to 707 million Swiss francs (S$1 billion) from 1.98 billion francs in the same period a year earlier, falling short of the 735 million-franc average estimate of analysts in a Bloomberg survey. The bank’s shares plunged 7.4 per cent to 15.30 francs each midday in Zurich, bringing their losses this year to about 21.6 per cent.

Chief executive Sergio Ermotti, 55, who has shifted the bank’s focus away from investment banking in favour of wealth management, is struggling with market volatility that led to a slump in trading across the firm. “We definitely entered into a kind of new territory in the first quarter. The first quarter was an environment that had only one constant — risk aversion from January 1 until the end of the quarter,” he said.

While there has been some stabilisation, economic challenges and geopolitical risks continue to contribute to client risk aversion and are unlikely to be resolved in the foreseeable future, UBS said. The bank said it is on track to cut costs by 1.4 billion francs by the end of the second quarter under a plan announced in 2014, with operating expenses decreasing 279 million francs in the first three months from a year earlier.

UBS plans to take additional efficiency measures at its corporate centre, and will also align the platforms for wealth management, it said, without elaborating on the impact. The wealth management division, led by Mr Juerg Zeltner, reported a pretax profit of 557 million francs, down from 951 million francs in the same period a year earlier as the bank had “the lowest transaction volumes recorded for a first quarter” at the unit. The unit’s profit fell short of the 682 million-franc average estimate of analysts compiled by Bloomberg.

The investment bank posted a 67 per cent drop to 253 million francs in profit, missing analysts’ estimates of 396 million francs. Corporate client solutions, the part of the unit that helps clients issue debt and equity and advises on mergers and acquisitions, suffered a drop in revenue of 39 per cent to 474 million francs. Investor client services, which houses the trading business, had a fall in revenue of 25 per cent to 1.4 billion francs.

Wealth management attracted 15.5 billion francs in net new money in the first quarter, reversing 3.4 billion in outflows in the previous quarter and making for annualised growth of 6.5 per cent, above UBS’ target of 3 to 5 per cent. Asset management saw net outflows of 5.9 billion francs, with one client pulling 7.2 billion francs over pricing.

“The very good net new money development is the bright spot in the first quarter after two weak quarters,” said Mr Andreas Brun, an analyst at Zuercher Kantonalbank in Zurich, who has a ‘Market Perform’ recommendation on UBS shares. BLOOMBERG