UBS may have overcharged rich clients in Singapore and Hong Kong

UBS said it is working with relevant authorities to address the inappropriate spreads.
UBS said it is working with relevant authorities to address the inappropriate spreads.PHOTO: REUTERS

ZURICH (REUTERS) - UBS is working with relevant authorities to address inappropriate spreads it may have charged wealthy clients whose money was booked in Hong Kong and Singapore in debt securities transactions, it said in its third-quarter report on Tuesday (Oct 22).

"UBS intends to reimburse affected customers on a basis agreed with the relevant authorities. UBS expects the relevant authorities will subject UBS to reprimands and fines as a result of their investigations," it said, noting that it had identified and reported the instances related to transactions between 2008 and 2015.

Switzerland's biggest bank is axing high-paying investment banking staff after a disappointing performance at the division prompted a 16 per cent slide in third-quarter net profit and put the group's 2019 profit goals further out of reach.

Chief executive Sergio Ermotti, credited for rapidly turning UBS around after the financial crisis, announced a further US$90 million in expected annual cost savings at the investment bank on Tuesday, following a prolonged performance dip which Ermotti described as unsatisfying even given a tough market.

An earnings beat in its core global wealth management unit helped offset a 59 per cent adjusted profit decline in its investment bank, putting the group's third-quarter net earnings of US$1.05 billion ahead of analyst expectations.

Ermotti is running up against a number of headwinds in UBS's core markets, as wealthy clients hold back from trading, negative rates eat into margins and investment banking activity remains muted.

The bank's share price is down 16 per cent over the past year, hitting a six-year low in August and edging back towards the level it was when Ermotti took charge in 2011.

In its investment bank a fall in M&A work meant its advisory revenue fell 21 per cent, while equity and debt capital markets income were down 22 per cent and 15 per cent respectively. On the trading side equities revenue fell 7 per cent, while foreign exchange, rates and credit revenue was steadier with just a 1 per cent fall.

UBS said it expects to take restructuring expenses of around US$100 million in the fourth quarter related to structural changes it is making to the business, run by co-heads Piero Novelli and Robert Karofsky.

 

Measures include streamlining and merging its securities and trading activities and reducing headcount.

OPERATIONAL GROWTH

The bank brought in net new money of US$15.7 billion in its flagship wealth management business, as a sizeable jump in transaction-based income for the unit, newly under the joint management of long-time wealth management co-head Tom Naratil and former Credit Suisse star Iqbal Khan, saw a sizeable jump in transaction-based income, helped restore operational growth.

Shares in UBS opened 1.9 per cent higher on wealth management strength.

While the group last year announced targets for a 15 per cent return on common equity for the year and a 77 per cent adjusted cost/income ratio, Ermotti in March hinted the bank faced a steep climb to attain the profitability increase implied by the targets.

Its return on common equity tier 1 (CET1) capital slid to 12.1 per cent in the third quarter, bringing the return down to 13.8 per cent for the first nine months, compared with 16.3 per cent over the first nine months of 2018.

The bank's net interest income fell 8 per cent from a year ago, as negative interest rates in Switzerland and the euro zone made their mark.