UBS profits drop below expectations
A sharp fall in profits at UBS’s investment banking division caused by charges to deal with the fall out of the collapse of Bill Hwang’s Archegos Capital and tumbling global stock markets has raided the Swiss lender’s bottom line.
UBS profits sank around $100m (£83m) over the last year to $2.1bn (£1.7bn), it announced today, dragged down by a big 14 per cent drop in investment banking income and lower than analysts’ expectations.
The Swiss bank was ensnared alongside other global finance firms by the Archegos Capital scandal in early 2021.
Hwang, the fund’s leader, placed heavily leveraged bets with finance sourced from the likes of UBS and Credit Suisse which soured, prompting his firm to fold, poisoning creditors’ balance sheets.
Global stock markets have tanked since the start of the year, dragged lower by fears over some of the world’s top economies tipping into recession and Russia’s invasion of Ukraine muddying the trading environment.
Investors have had to grapple with a historic global inflation thinning companies’ margins and the world’s biggest central banks embarking the quickest monetary policy tightening cycle in decades.
Those headwinds have pushed the US’s S&P 500 down over 17 per cent since the beginning of the year.
Ralph Hamers, chief executive of UBS group, said: “The second quarter was one of the most challenging periods for investors in the last 10 years. Inflation continues to be high, the war in Ukraine is ongoing, as are strict Covid policies in parts of Asia.”
UBS’s wealth management fee income dipped six per cent, “primarily driven by negative market performance and foreign currency effects,” it said in today’s trading update.
The firm generates a significant proportion of its revenues from the world’s richest parking their money with the bank.
European banks’ earnings season is being closely watched by markets for signs of a cool down in consumer spending in response to surging inflation and sliding investment banking revenues.
UK FTSE 100-listed lenders Barclays, Lloyds, NatWest and Standard Chartered all report this week.