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UBS warns market falls will hit wealth management revenues

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UBS says the overall economic outlook remains positive and asset prices have improved.

Zurich

UBS Group AG warned that client activity is still recovering after investors pulled US$13 billion of assets in the final quarter of last year and said that wealth management revenues will be hit by the market declines.

Withdrawals at the Zurich-based bank's key global wealth management unit totalled almost US$8 billion in the fourth quarter, with the remainder coming from asset management. In a sign that the worst may not be over, UBS said increased volatility, rising protectionism and geopolitical tensions are still weighing on investors. A decline in assets because of the market slump are set to hurt both wealth and asset management revenue this quarter.

UBS is struggling to reap greater profits from a merger of its two wealth management businesses, revive a flagging stock price and improve investment banking results after the departure of its top dealmaker. It's the latest bank to suffer from the wild market swings that kept many clients on the sidelines in the final stretch of the year, after Societe Generale warned that fourth-quarter trading revenue probably dropped about 20 per cent.

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Chief executive officer Sergio Ermotti and chairman Axel Weber have overseen a pivot away from investment banking since the global financial crisis to focus on managing money for the rich. While that strategy has helped the bank become more resilient to market swings - UBS is still vulnerable to the volatility which is causing billionaires to invest less in fee-generating mandates.

"In wealth management, particularly when I look at our overall results, of course they are not up to our ambitions and our expectations," Mr Ermotti said in an interview. Clients are taking a wait-and-see attitude amid the trade tensions, he said.

Profit at wealth management was US$912 million, compared with estimates of US$943 million, while the investment bank also disappointed, reporting a US$30 million profit that was just a fraction of what analysts had been expecting. In a blow to the bank, Andrea Orcel - who had overseen rising profits at the business even as the bank reduced the amount of capital allocated to it - decided to leave UBS earlier this year.

There was some good news: the bank is targeting as much as US$1 billion in share repurchases this year after buying back US$750 million in 2018 and said it had a net tax benefit of US$275 million. It also said the overall economic outlook remains positive and asset prices have improved.

Mr Ermotti is likely to face questions from analysts and investors on succession planning, a topic that's been forced into the open in recent weeks at the world's largest wealth manager. Mr Ermotti and Mr Weber - who are publicly emphasising the bank's internal talent - are also privately acknowledging the need for outside executives to strengthen the executive board after recent departures, according to sources.

UBS tweaked some targets as part of the bank's investor day in October, setting goals for annual profit growth in private banking, a commitment to cut about 800 million Swiss francs (S$1.1 billion) of costs and further boost capital. The bank is targeting net new money growth of 2-4 per cent a year in wealth management.

Meanwhile, Reuters reported that UBS on Tuesday posted a US$862 million fourth-quarter pre-tax profit, hit by a slowdown in its flagship wealth management business and weaker earnings in its investment bank.

On an adjusted basis, fourth-quarter pre-tax profit fell to US$860 million, under conditions Mr Ermotti described as "historically tough". Full-year net profit rose to US$4.897 billion from US$969 million in 2017, when a one-off 2.9 billion franc hit from US tax reforms dampened results. Five analysts polled by Reuters on average had forecast a net profit of US$4.906 billion for 2018.

The bank proposed a dividend of 0.70 Swiss francs for 2018, up from 0.65 Swiss francs the prior year. BLOOMBERG, REUTERS