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UBS misses key 2019 targets amid mounting headwinds

Swiss bank suffers unexpected US$4.7b of outflows in Q4 as it seeks to turn its wealth business around


UBS Group AG missed key targets for 2019 as investors pulled money late in the year, underscoring the challenge for new wealth management co-head Iqbal Khan as he seeks to turn around its most important business.

The Swiss bank failed to meet several metrics set during a revamp of its goals just over a year ago, highlighting mounting headwinds for European lenders while US rivals post record profits. The downgrades were across the board - on profit, cost efficiency and dividend growth - while the private bank unexpectedly saw US$4.7 billion of outflows in the last quarter.

The downgrades mark a reversal for chief executive officer Sergio Ermotti after he rejigged goals in Oct 2018 under pressure from investors. To help restore the bank's edge and strengthen the bench of potential CEO successors, Mr Ermotti in October brought in Mr Khan from Credit Suisse. The new executive is cutting jobs, speeding up decision making and giving more autonomy to the regions in an effort to revive the wealth business.

Here are the key numbers - and new targets - from UBS's results: Wealth management outflows of US$4.7 billion driven by Americas. Return on CET1 capital of 12.4 per cent in 2019 below 15 per cent target. Now targeting CET1 capital metric at 12-15 per cent to 2020-2022. Adjusted cost-to-income ratio of 78.9 per cent missed target of 77 per cent. Now targeting cost-to-income metric at 75-78per cent. 1 cent a share dividend rise going forward; had sought mid-to-high single digit percent. US$722 million net income beats company compiled estimate of US$682 million.

"Higher invested assets and seasonality bode well to 2020's start, but a miss on wealth flows is a concern," Alison Williams, an analyst with Bloomberg Intelligence, wrote in a note.

The fourth quarter marks the first for Mr Khan at UBS since his acrimonious departure from Credit Suisse in the summer, followed by a spying scandal in which he was followed through the streets of Zurich by an espionage agency hired by his former employer. After being given 60-days by Mr Ermotti to come up with a plan for the wealth management business with co-head Tom Naratil, he's relying on many of the levers of his success at Credit Suisse: more power to the regions, boosting lending to rich clients and moving customers who don't need complex services to cheaper models.

As part of his overhaul, Mr Khan is also dismantling the ultra-high net worth business as well as a miniature investment bank within the wealth unit that was seen as a drag on loan approvals and a source of costs. He also split up the business serving Europe, the Middle East and Africa and is cutting 500 jobs.

Among his first challenges - with Mr Naratil - will be to stem the unexpected outflows at the business which, in part, may have caused the bank to abandon a goal of net money growth of 2-4 per cent per year. BLOOMBERG