UBS's star investment bank fades as Asia markets spook investors

[ZURICH] UBS Group AG's investment bank, a star performer in recent quarters, crashed back to earth towards the end of last year, hurt by wild swings in equities markets that pushed clients to the sidelines.

Equities-trading revenue fell 13 per cent to US$792 million in the fourth quarter, offsetting an increase in earnings from foreign exchange, the bank said on Tuesday. Institutional investors, traders and hedge funds - mainly in Asia - stayed on the sidelines amid volatile stock markets in the second half of December. The decline pushed the investment bank unit to a US$47 million loss.

Today's result is a stark contrast to last year, when the investment bank was a bright spot that consistently beat analyst expectations under former boss Andrea Orcel. The top 5 US banks reported an average 10 per cent rise in equities trading revenue in the fourth quarter.

"I am comfortable there is nothing strategic or structural we should look into for the future," chief executive officer Sergio Ermotti said in a call with analysts. "It is a clear convergence of market factors and client activity," especially in the bank's outsized presence in the Asia-Pacific region, he said.

UBS cited "sharp declines in global equity markets, which led to reduced client activity levels", for the performance of the division. Chief financial officer Kirt Gardner said weakness in the derivatives business in Asia hurt the unit's performance.

JPMorgan analysts said UBS's net revenues were significantly weaker than expected, while Vontobel pointed out that equity trading revenues were weaker than US peers.

UBS was stunned by the surprise departure of star banker Orcel in September. He accepted an offer to become chief executive officer of Banco Santander SA that was later rescinded in a dispute over pay.

BLOOMBERG