UBS reported on Tuesday a surprise loss of $ 774 million from the collapse of US investment fund Archegos, which cut the world’s largest asset manager’s projected quarterly net profit growth to 14%.
Earlier, the largest bank in Switzerland has already pushed with accusations of involvement in this scandal. Losses from Archegos continue to be felt in the global banking industry: on Tuesday, Japan’s Nomura reported its largest quarterly loss in more than a decade due to its relationship with the affected fund.
“We are all clearly disappointed and are taking this very seriously,” UBS CEO Ralph Hamers said of the group’s brokerage losses stemming from the default of a US client. Although the client’s name has not been revealed, many understand that it is Archegos.
“A detailed analysis of our respective risk management processes is underway and appropriate measures are being taken to avoid such situations in the future,” he said.
UBS shares fell 1.15% premarket.
The bank, which has so far scrutinized its involvement with Archegos and has previously declined to comment on any related positions, said Tuesday that revenue from its primary brokerage business reduced its net income by $ 434 million in the first quarter.
However, net income of $ 1.824 billion in the first three months of 2021 exceeded median expectations of $ 1.591 billion in a survey of 20 analysts conducted by the bank.
UBS also reported higher-than-expected profit before tax in the first quarter, as explosive trade growth and record results from the start of the coronavirus crisis last year helped offset the blow from Archegos.
Hamers, who replaced longtime boss of the firm Sergio Ermotti in November, was hired to help the bank accelerate its digitalization efforts following a successful work at ING.
But his early work at UBS, widely recognized as an opportunity to prepare the bank for a more technology-driven future, was complicated by a Dutch criminal investigation into his role in money laundering at ING.
Hamers plans to unveil new strategic initiatives by speaking to analysts at 08:00 GMT on Tuesday and will focus on making UBS a faster, more customer-centric digital firm focused on sustainable investment.
The bank said the simplification of its policies and new digitalization measures should help generate gross savings of about $ 1 billion a year by 2023, which should be reinvested in growth initiatives.
The bank has also been given a new leadership role with Chief Digital Officer Mike Dargan, which Hamers said will help the bank realize its strategic digital ambitions.
UBS has receded into the background in financial headlines in recent months after a series of painful mistakes against its closest competitor, Credit Suisse, led to losses, layoffs and investigations at Switzerland’s No. 2 bank.
Credit Suisse lost more than $ 5 billion due to the collapse of Archegos, which caused losses among a number of global banks and a massive sell-off in shares when the fund defaulted on margin requirements in late March.
“Given the strong first quarter results, we felt that there was no need (to disclose our losses related to Archegos) at the time (the default was first disclosed),” Hamers said in an interview with Bloomberg TV.
He added that the bank has no plans to ditch its primary brokerage business following the disaster.
The bank closed all remaining positions in April, the bank said in a statement, and recognizes corresponding losses in the second quarter, which are “immaterial to the group.”
Taking a prudent approach to the second quarter, the bank said it expects client activity to decline from the highs seen in the first three months of the year, offset in part by an increase in recurring fees it generates when managing client investments due to higher asset prices.
UBS / Credit Suisse Shares. Source Reuters
UBS derives most of its profits from advising and managing the money of the world’s wealthiest people, and also supports smaller global investment banks and asset management operations.
It only conducts retail and corporate banking in its domestic market.
This business model paid off in 2020 as its low-risk loan portfolio, consisting mainly of mortgages and loans to the wealthy, and a smaller share of corporate and retail loans in Switzerland’s thriving domestic market, suffered fewer losses than many large companies. – competitors.
Now, in the first three months of 2021, the bank has once again exceeded financial targets amid record activity in its client franchises, and as a smaller and more risk-averse investment bank helped cushion the blow from Archegos, it also received fewer rewards from the increased activity in capital markets reported by peers.
US banks posted better-than-expected first-quarter results: Goldman Sachs increased profits sixfold and Morgan Stanley increased profits 150%, despite Archegos reporting a loss of nearly $ 1 billion.
UBS, however, saw its pre-tax profit from investment banking fell 42% on the back of Archegos-related expenses and more modest revenue growth in the rest of its trading business.
As part of wealth management, earnings rose 16% as lending growth and high transaction rates helped cushion the impact of falling and persistently low interest rates.
The bank received $ 36.2 billion in capital inflows from new high net worth clients, which helped boost its invested assets to $ 3.108 trillion.
In the meantime, its asset management division posted the highest profitability of any bank division, increasing profits by 45% thanks to a favorable investment environment.