New capital and regulatory requirements, combined with a weakening economic outlook, are likely to weigh on future returns, constraining growth prospects for the industry. While we believe we will deliver higher profitability, our target for pre-tax profit set in 2009 is unlikely to be achieved in the original timeframe of 3 to 5 years. Over the next 2 to 3 years, UBS will eliminate costs of CHF 1.5–2.0 billion, while remaining committed to investing in growth areas.
And so begins the second quarter results statement from UBS.
In truth, the decision to abandon the targets is not a great surprise. Consensus pre-tax profit forecasts for 2013 were already 27 per cent below UBS’ target at a group level and between 17 per cent and 38 per cent below targets on a divisional level, analysts at Merrill Lynch were quick to point out this morning.
This probably explains why the shares are only down a couple of per cent a pixel time.
Still, there’s no disguising that fact that Tuesday’s results are weak. Much of that blamed on the strength of the Swiss franc. Revenues of Sfr7.1bn were 8 per cent below forecasts while operating expenses were 7 per cent shy of expectations and pretax profit was 15 per cent.
Once again the ever volatile investment banking division is is the culprit, although its performance isn’t that much worse than its peers, says Citigroup.
Investment Bank Weak – IB PBT of SFr0.3bn was below our (SFr0.5bn) and consensus (SFr0.7bn) forecast primarily driven by weaker revenues. On a US$ basis, FICC was down 37% qoq (US banks down 36%), while Equities and Investment Banking were down 13% qoq (down 14%) and 1% qoq (up 18%), respectively. While Prime Services held up, Equities was affected by lower revenues across both Cash & Derivatives. FICC revenues were affected by significantly weaker credit trading revenues against a notably strong 1Q11.
Indeed Deutsche Bank, which has also announced Q2 results on Tuesday, reported a 37 per cent quarter-on-quarter drop in FICC (fixed income commodities and currency) revenue, citing lower client activity (because of the Eurozone debt crisis presumably). Deutsche’s equities business also suffered with revenues down 41 per cent quarter-on-quarter.
Still, the performance of UBS’s other key business — wealth management — was nothing to write home about. Yes, the division beat forecasts but only because of cost cutting (the asset under management trend was actually quite weak).
And the Swiss bank is being forced to hack a further $1.9-$2.5bn from its cost base over the next two to three years because of the “growth prospects” for the industry, which, of course, will trigger a significant restructuring charge later in the year.
By which time UBS should have outlined its new financial targets and structure for the business. Given the continued weak performance of the FICC division what’s the betting its significantly scaled back or even scrapped?
All is not well in the investment banking world.
Related link:
UBS scraps earnings targets – FT
Goldman’s prized division comes up short – FT