The more one looks at Tuesday’s third quarter results from UBS the uglier they seem — and not just because its top bankers want the $1m cap on cash bonuses lifted so they can pay the mortgage and the kids school fees.
To recap, the Swiss bank reported a surprise $412m pre-tax loss in its investment banking division after a poor trading performance by its equities and fixed-income businesses
UBS blamed the loss on subdued clients activities and lower volumes and said its FICC division had been hit particularly hard.
FICC revenues were CHF 869 million compared with CHF 1,703 million, due to negative debit valuation adjustments on the derivatives portfolio as well as a slowdown in client activity and weaker than expected market volumes and economic conditions, particularly in the US.
However, those same market conditions don’t seem to have affected Deutsche Bank to anything like the same degree. In fact, in Wednesday’s third quarter results statement Deutsche says client activity rebounded strongly in the second half of September.
Sales & Trading revenues were EUR 2.9 billion, versus EUR 3.0 billion in the prior year quarter. Net revenues in Sales & Trading (debt and other products) were EUR 2.2 billion, up 5% from EUR 2.1 billion. In the third quarter 2010, the expected seasonal slowdown in client activity in July and August was exacerbated by ongoing sovereign risk concerns. However, this was followed by a strong rebound in September, particularly in the second half of the month. Foreign Exchange recorded strong results with higher revenues than in the prior year quarter, although revenues in Money Markets and Rates were significantly lower due to normalization of the market environment
In fact, the performance of Deutsche’s investment banking operations is broadly in line with that of its global peer group, says Nomura analyst Jon Peace:
In the Investment Bank, excluding items, FICC trading revenues were -1% QoQ/-19% YoY (peers -2%/-22%), Equity trading revenues were +14% QoQ/-21% YoY (peers +15%/-23%) and IBD revenues were +4% QoQ/-3% YoY (peers +9%/-3%). The loan products business included a cEUR100mn gain on sale of Axel Springer shares, offset by charges on Ocala funding and a small impact of own debt.
But it’s much better than the Swiss — note that Credit Suisse has also reported weak trading in equities foreign exchange and fixed income.
Why that should be, we aren’t sure. Perhaps, it is a matter of timing. After all UBS CEO Oswald J. Grübel reckons there will be an uptick in the fourth quarter.
“The third quarter was unusual in that there were very low levels of client activity as well as a strengthening of the Swiss franc against most major currencies. This had an impact across all of our businesses. However, we are optimistic that an uptick in the fourth quarter will benefit all of our business divisions. We remain confident about our future and believe that we are on track to achieve our medium-term goals”.
He’d better be right. Otherwise people will start to ask questions.
As for Deutsche Bank, its shares have clawed back all and more of the losses sustained in the wake of the UBS numbers.
Related Link:
An investment banking horror, from UBS – FT Alphaville