UBS falls as wealth clients add to takeover challenges

BLOOMBERG

UBS Group AG warned that wealthy clients are turning increasingly risk-averse, adding to challenges for Switzerland’s largest bank as it embarks on the complex task of integrating Credit Suisse Group AG.
Shares of UBS fell as much as 5.4% in Zurich trading after the lender reported the weakest quarterly profit in more than three years, along with an outlook for interest income at the wealth unit that disappointed analysts.
That overshadowed $28 billion in new money from rich clients during the quarter, including $7 billion that came in the 10 days after the rescue of the smaller rival was announced in March.
Retaining clients and assets is a key challenge for Sergio Ermotti, who was brought back as UBS Chief Executive Officer as the bank embarks on an extensive restructuring following the historic deal. Credit Suisse revealed that it borrowed far more from a central bank liquidity backstop than previously known, with clients continuing to flee after the deal was announced.
The inflows at UBS are “a sign of confidence of our clients,” Ermotti said in an interview with Bloomberg TV. The money didn’t come just from Credit
Suisse clients, with the US being a main driver, he said.
The new assets are an early indication of the scale of funds the combined firms will be able to retain. Credit Suisse clients had pulled about $53 billion from its wealth unit during the first quarter. Much of that didn’t end up with UBS, suggesting clients that had accounts with both banks are seeking to reduce their exposure following the deal.
UBS said it expects the takeover to close in May. The firm has been a beneficiary of Credit Suisse’s troubles, with wealthy clients adding $23.3 billion net new fee-generating assets already in the fourth quarter. It is now paying about
3 billion francs for a former competitor that finished in March with a book value of 54 billion francs, giving it plenty of protection against losses.
Despite the new money that came in, revenue at the wealth business fell short of estimates, with UBS blaming “‘subdued” client activity that could continue into the second quarter. Ermotti said in an interview with Bloomberg TV that the bank isn’t ruling out a potential recession later this year or early next year.
UBS fell 3.5%, with analysts including Kian Abouhossein at JPMorgan Chase & Co pointing to a weaker outlook for lending income at the wealth business. The bank also set aside $665 million for litigation tied to its role in selling mortgage securities before the financial crisis.
Still, “overall the results are in line with consensus expectations,” Abouhossein wrote. “More importantly, the wealth management unit remains a strong performer with the franchise well intact.”