SWISS BANK UBS has forecast further weakness in investment banking after a restructuring of the business failed to prevent an earnings hit from the euro zone debt crisis and worries about the global economy.
“Traditional improvements in first-quarter activity levels and trading volumes may fail to materialise fully, which would weigh on overall results for the coming quarter, most notably in the investment bank,” UBS said today.
Shares in UBS fell 1.1 per cent after the bank said fourth-quarter net profit shrank to 393 million Swiss francs (€325 million) from 1.66 billion francs in the 2010 period and compared with a forecast for 737 million in a Reuters poll.
Investment banks had a torrid time last year as trading and advisory income was hammered as clients pulled back from markets due to the euro zone debt crisis, and stopped doing deals. The outlook is set to remain tough as tougher regulations and economic slowdown bite.
US rivals including Goldman Sachs and JPMorgan posted weak fourth quarter income, and Deutsche Bank also fell to a fourth quarter loss due to a slump in bond trading.
UBS, which announced in November it would scale back its investment bank business to focus on its flagship private bank, said it had cut risky assets by 20 billion Swiss francs in the fourth quarter with “no significant impact on profitability”.
Kepler Capital Markets analyst Dirk Becker welcomed the reduction in risky assets but said there were still questions over the future of the investment bank.
“Revenues have recovered from the really poor Q3 levels, but are still too low to feed a division with still over 17,000 employees,” he said.
“The downsizing plans of the management will reduce this revenue base further and make it impossible to achieve satisfactory returns for this division, which will still consume the largest part of the capital.”
UBS said it saw a few “bright spots” in the performance of its investment bank, which was hit by a $2 billion rogue trader scandal uncovered in September but pared its pretax loss to 256 million francs from a loss of 650 million francs the previous quarter. – (Reuters)
