UBS quarterly profit falls 14% amid subdued client activity

A sign sits illuminated outside a branch of UBS Group AG in Zurich, Switzerland in May 2016.
A sign sits illuminated outside a branch of UBS Group AG in Zurich, Switzerland in May 2016. PHOTO: BLOOMBERG

ZURICH (BLOOMBERG) - UBS Group said profit slipped 14 per cent in the second quarter as both wealth management and investment banking generated less revenue during a rocky period for markets.

Net income fell to 1.03 billion Swiss francs (S$1.42 billion), from 1.21 billion francs a year earlier, the Zurich-based bank said in a statement on Friday (July 29). That beat the 668 million-franc average of five analyst estimates compiled by Bloomberg. The bank posted a gain of 123 million francs in its Swiss and wealth management units from the sale of a stake in Visa Europe Ltd as well as a gain of 120 million francs from sales of real estate.

"Sustained market volatility, underlying macroeconomic uncertainty and heightened geopolitical tensions exacerbated by the impact of the UK referendum vote to end EU membership, continued to contribute to client risk aversion and generally low transaction volumes," UBS said in the statement. "These conditions are unlikely to change in the foreseeable future."

Four years after UBS made wealth management its priority, chief executive officer Sergio Ermotti, 56, is seeking to prevent market turmoil and record-low interest rates from derailing his profitability targets.

After earnings plunged in the first quarter, he eliminated some jobs at the investment bank, people familiar with the matter said and announced plans to consolidate some back-office functions. UBS has also put hiring in wealth management partially on hold.

Switzerland's biggest bank retreated from large parts of investment banking in late 2012, seeking a more stable, less risky source of income. UBS was the leader in private banking at the end of 2015, according to an annual study by London-based consulting firm Scorpio Partnership. Credit Suisse Group, which reported a surprise profit on Thursday, is now pursuing a similar strategy, competing for super-rich clients in emerging markets like the Asia-Pacific region.

UBS's shares have declined 32 per cent this year, faring better than Credit Suisse and Deutsche Bank, which have both lost about half their market value.

Its cost-to-income ratio in the quarter was 80 per cent, down from 77 per cent a year earlier. The bank said it achieved its target to cut costs by 1.4 billion francs compared with expenses in 2013.