UBS warns 'low and negative interest rates' hitting business

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
A sign of Swiss banking giant UBS is seen on a branch in Bern on April 25, 2019 in Bern. Photo: FABRICE COFFRINI/AFP/Getty Images

UBS (UBSG.SW) reported a fall in income and pre-tax profit on Tuesday, as it warned that the global economy remains “challenging.”

The Swiss bank reported pre-tax profit of $1.3bn for the third quarter, down 21% on the same quarter last year but above analysts expectations. Shares rose 2% in Zurich.

Profit declined in all businesses except asset management. UBS blamed the “challenging environment”.

“Geopolitical tensions and trade disputes continue to impact investor confidence,” the bank said. “Positive momentum toward resolving these issues would likely improve confidence and the economic outlook.”

The bank warned that “low and persistent negative interest rates and expectations of further monetary easing” would also continue to hurt the business. A bank’s core business of writing loans depends on a spread between the interest rate it can attract capital at and the interest rate it lends at. Low rates cut margins and negative rates leave banks facing loses.

The headline Swiss interest rate is -0.75% and UBS already charges some rich clients for holding cash deposits. The European Central Bank (ECB) cut interest rates to -0.5% in September and other central banks around the world are expected to cut rates in the coming months.

Pre-tax profit at UBS’ investment bank crashed 59%. UBS cited the global slowdown in investment banking as the cause. The number of companies listing on the stock market was a three-year low during the first 9 months of 2019, according to data provider Refinitiv, and private equity-backed takeover deals are down 2% on this time last year.

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UBS said it would take a $100m hit in the fourth quarter to restructure its investment bank without giving specifics. Rivals such as Deutsche Bank (DBK.DE), HSBC (HSBA.L), Societe Generale (GLE.PA), and Nomura (8604.T) have all announced job cuts this year, most focusing on investment banking.

However, UBS had better news to report in wealth management, which has been the bank’s big focus in the decade since the financial crisis. Assets under management rose by $15.7bn to hit $2.5trn, an all-time high for the division.

UBS recently poached wealth management chief Iqbal Khan from arch rival Credit Suisse, a hire that sparked a spying scandal. The scandal threatened the job of Credit Suisse (CS) CEO Tidjane Thiam and cost COO Pierre-Olivier Bouée his job.

Overall, UBS reported net profit attributable to shareholders $1bn in the third quarter, down 16% on the same quarter a year ago.

“We delivered solid results generating attractive returns, considering the market conditions,” UBS chief executive Sergio Ermotti said in a statement. “We continue to take actions to grow profitability and further capitalize on the strengths of our diversified franchise, delivering long-term value for our clients and shareholders."

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