UBS has warned that further turmoil in markets will prompt clients to retreat after its second-quarter profits fell short of expectations, sending shares in the world’s largest wealth manager down more than 5 per cent.
The Swiss group’s private bank bore the brunt of a bruising quarter, with pre-tax profit for the business falling 11 per cent as clients “stayed on the sidelines”, UBS said on Tuesday.
In contrast to the first three months of the year, when UBS traders managed to capitalise on the volatility in markets, earnings at its investment banking unit fell 39 per cent in the second quarter.
Overall, the group’s pre-tax profit edged up 1 per cent from a year earlier to $2.1bn, as the bank benefited from an $848mn gain from the sale of a real estate joint venture with Mitsubishi. However, analysts had predicted UBS would make a profit of $2.4bn in the quarter.
UBS said it expected market conditions to continue to cause investors to pull back from the market, warning this could hamper its third-quarter results.
Shares in the bank dropped 6 per cent to SFr15.20 ($15.78) in early trading on Tuesday, having fallen 23 per cent since hitting a seven-year high in early February.
“We knew that recurring fees and transaction-based revenues would decline, but they did more than expected,” said Jefferies analyst Flora Bocahut.
The lacklustre performance was a reversal from the start of the year, when UBS reported its best first quarter performance since 2007 as the bank’s traders benefited from volatile markets and offset a weaker showing from its wealth managers.
“The second quarter was one of the most challenging periods for investors in the last 10 years,” said UBS chief executive Ralph Hamers. “Inflation continues to be high, the war in Ukraine is ongoing, as are strict Covid policies in parts of Asia.”
He added: “Institutional clients remained active on the back of high volatility. We supported them with advice and execution while handling very high volumes. At the same time, private clients stayed on the sidelines.”
UBS also confirmed it was being investigated along with most Wall Street lenders by US regulators for its bankers’ use of private messaging tools with clients. Hamers indicated some of the $221mn litigation provisions the bank made related to the investigation.
JPMorgan agreed to pay a $200mn fine over the matter last year, while several US banks have set aside similar amounts for potential future settlements.
The results from UBS came a day after Swiss wealth manager Julius Baer reported a 26 per cent fall in net income for the first half of the year as nervous customers deleveraged their portfolios and retreated from falling stock markets.
Credit Suisse, Switzerland’s second-biggest bank, reports earnings on Wednesday, having already warned of losses for the second quarter.
This month, UBS announced that Iqbal Khan would take sole charge of its wealth management business when his co-head, Tom Naratil, leaves the bank in September after 39 years. Naratil is also head of UBS US operations.
The group’s wealth business suffered $3.5bn of outflows in the US and $500mn in Europe, though Swiss clients added $1.1bn to their accounts, while there were $3.3bn of inflows in Asia.
“It is fair to say UBS is underperforming US peers so far both on the investment bank side as well as Morgan Stanley in US wealth management performance,” said JPMorgan analyst Kian Abouhossein.
The US market has become a focus for growth for UBS, with Hamers and new chair Colm Kelleher recently embarking on a charm offensive among American investors.