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UBS warns of headwinds after clients pull $13B in quarter

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UBS warned that the worst may not be over after clients pulled $13 billion in assets during a market meltdown in the final months of 2018.

Increased volatility, rising protectionism and geopolitical tensions are still weighing on investors, which will hit wealth and asset management revenue in the first quarter, the Zurich-based bank said Tuesday. Withdrawals at the key global wealth management unit totaled almost $8 billion in the fourth quarter, with clients removing another $5 billion from asset management.

The firm also said it had outflows from ultrahigh-net-worth clients of $3.5 billion compared to net inflows of $13 billion from the year-ago period.

The results underscored the bank’s struggles to reap greater profits from a merger of its two wealth management businesses and improve investment banking results after the departure of its top dealmaker. UBS is 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 fourth-quarter trading revenue probably dropped about 20%.

“These are very poor results, and come as somewhat of a negative surprise so soon after the upbeat investor day,” analysts including Andrew Coombs at Citigroup wrote in a note to investors. In wealth management “the fourth quarter is usually seasonally weak, but this is disappointing.”

CEO 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 been imitated by rivals including Credit Suisse — and helped the bank become more resilient to market swings — UBS is still vulnerable to the volatility that has prompted clients to flee.

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

Ermotti’s assessment contrasted with comments from his counterpart at Credit Suisse, Tidjane Thiam, who told Bloomberg in an interview that assets at his firm have been “resilient” and the bank sees no reason to change the guidance it had given at its investor day last month.

“Look, it is a very difficult fourth quarter,” Thiam said from the World Economic Forum in Davos, pointing to disappointing earnings at some of his largest rivals. “Things have gotten better since the beginning of the year.”

UBS declined 3.8% at 10:37 a.m., while Credit Suisse fell 0.6%. Profit at UBS’s wealth management was $912 million, compared with estimates of $943 million, while the investment bank also disappointed, reporting a $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 $1 billion in share repurchases this year after buying back $750 million in 2018 and said it had a net tax benefit of $275 million. It also said the overall economic outlook remains positive and asset prices have improved.

Ermotti said he’s no intention of stepping down after questions on succession planning, a topic that’s been forced into the open in recent weeks at the world’s largest wealth manager. Ermotti and Weber — who are publicly emphasizing the bank’s internal talent — are also privately acknowledging the need for outside executives to strengthen the executive board after recent departures, according to people with knowledge of the matter. Ermotti at a press conference on Tuesday said that change is still “years away.”

UBS began intensifying succession planning after the departures of Orcel and former wealth head Juerg Zeltner. In the latest twist, Orcel’s exit to Banco Santander ended with the Spanish bank rescinding its offer after a dispute over his pay. UBS withheld bonuses amounting to tens of millions of dollars he was owed from previous years. That would have left Santander to make it up to the executive, which it decided against. Orcel doesn’t plan to return to the Swiss bank, a person with knowledge of the situation said.

UBS’s other fourth quarter highlights include the bank's global wealth management's adjusted pre-tax profit of $912 million compared with estimates of $943 million.

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 francs ($800 million) of costs and further boost capital. The bank is targeting net new money growth of 2-4% a year in wealth management.

Bloomberg News