SINGAPORE (Jan 22): UBS Group AG warned client activity is still recovering after investors pulled US$13 billion ($17.7 billion) of assets in the final quarter of last year and said that wealth management revenues will be hit by the market declines.
Withdrawals at the Zurich-based bank’s key global wealth management unit totalled almost US$8 billion in the fourth quarter, with the remainder coming from asset management. In a sign that the worst may not be over, UBS said increased volatility, rising protectionism and geopolitical tensions are still weighing on investors. A decline in assets because of the market slump are set to hurt both wealth and asset management revenue this quarter.
UBS fell as much as 5% in early Zurich trading, leading European bank stocks lower. The shares declined 4.2% at 9.08 am, bringing losses in the past 12 months to 34%.
“These are very poor results, and come as somewhat of a negative surprise so soon after the upbeat investor day,” analysts including Andrew Coombs at Citigroup wrote in a note to investors. In wealth management “the fourth quarter is usually seasonally weak, but this is disappointing.”
The bank is struggling to reap greater profits from a merger of its two wealth management businesses, revive a flagging stock price and improve investment banking results after the departure of its top dealmaker. It’s the latest bank to suffer from the wild market swings that kept many clients on the sidelines in the final stretch of the year, after Societe Generale warned fourth-quarter trading revenue probably dropped about 20%.
Still Vulnerable
Chief Executive Officer Sergio Ermotti and Chairman Axel Weber have overseen a pivot away from investment banking since the global financial crisis to focus on managing money for the rich. While that strategy has been imitated by rivals including Credit Suisse Group AG -- and helped the bank become more resilient to market swings -- UBS is still vulnerable to the volatility which is causing billionaires to invest less in fee-generating mandates.
“In wealth management, particularly when I look at our overall results, of course they are not up to our ambitions and our expectations," Ermotti said in an interview with Francine Lacqua. Clients are taking a wait-and-see attitude amid the trade tensions, he said.
Profit at wealth management was US$912 million, compared with estimates of US$943 million, while the investment bank also disappointed, reporting a US$30 million profit that was just a fraction of what analysts had been expecting. In a blow to the bank, Andrea Orcel -- who had overseen rising profits at the business even as the bank reduced the amount of capital allocated to it -- decided to leave UBS earlier this year.
There was some good news: the bank is targeting as much as US$1 billion in share repurchases this year after buying back US$750 million in 2018 and said it had a net tax benefit of US$275 million. It also said the overall economic outlook remains positive and asset prices have improved.
Succession Planning
Ermotti is likely to face questions from analysts and investors on succession planning later on Tuesday, a topic that’s been forced into the open in recent weeks at the world’s largest wealth manager. Ermotti and Weber -- who are publicly emphasising the bank’s internal talent -- are also privately acknowledging the need for outside executives to strengthen the executive board after recent departures, according to people with knowledge of the matter.
UBS began intensifying succession planning after the departures of Orcel and former wealth head Juerg Zeltner. In the latest twist, Orcel’s exit to Banco Santander SA ended with the Spanish bank rescinding its offer after a dispute over his pay. UBS withheld bonuses amounting to tens of millions of dollars he was owed from previous years. That would have left Santander to make it up to the executive, which it decided against. Orcel doesn’t plan to return to the Swiss bank, a person with knowledge of the situation said.
UBS’s other fourth quarter highlights CET1 ratio 13.1% Global wealth management adj. pretax profit US$912 million compared with estimates of US$943 million. Investment bank adj. pre-tax profit US$30 million vs US$229 million company compiled est.
UBS tweaked some targets as part of the bank’s investor day in October, setting goals for annual profit growth in private banking, a commitment to cut about 800 million francs ($1.09 billion) of costs and further boost capital. The bank is targeting net new money growth of 2-4% a year in wealth management.
