UBS misses key targets in challenge to Iqbal Khan overhaul

Bloomberg

UBS Group AG missed key targets for 2019 as investors pulled money late in the year, underscoring the challenge for new wealth management co-head Iqbal Khan as he seeks to turn around its most important business.
The Swiss bank failed to meet several metrics set during a revamp of its goals just over a year ago, highlighting mounting headwinds for European lenders while US rivals post record profits. The downgrades were across the board — on profit, cost efficiency and dividend growth — while the private bank unexpectedly saw $4.7 billion of outflows last quarter.
UBS shares declined as much as 5.9% in early Zurich trading, the most since May, and were 5% lower as of 9:07 am local time.
The downgrades mark a reversal for Chief Executive Officer Sergio Ermotti after he rejigged goals in October 2018 under pressure from investors. To help restore the bank’s edge and strengthen the bench of potential CEO successors, Ermotti in in October brought in Khan from Credit Suisse. The new executive is cutting jobs, speeding up decision making and giving more autonomy to the regions in an effort to revive the wealth business.
UBS isn’t alone in dialling back its ambitions in an era of negative rates, investor caution and escalating trade tensions. Credit Suisse toned down its target in December, while Deutsche Bank AG last month warned that its mid-term profitability goal now appears to be “more ambitious,” and it will rely more on volatile investment banking to reach its revenue target. Italy’s UniCredit SpA is cutting 8,000 jobs as part of its new multi-year plan to boost returns in the face of limited growth prospects.
The lower targets — and outflows — overshadowed a strong finish to the year in which the bank posted better than expected net income and investment banking results while boosting its core financial strength. UBS also gave a moderately positive outlook for the first quarter, saying client activity is picking up and the favorable credit environment and partial resolution of trade disputes should help mitigate slowing global economic growth.
“Higher invested assets and seasonality bode well to 2020’s start, but a miss on wealth flows is a concern,” Alison Williams, an analyst with Bloomberg Intelligence, wrote in a note.
The fourth quarter marks the first for Khan at UBS since his acrimonious departure from Credit Suisse in the summer.
, followed by a spying scandal in which he was followed through the streets of Zurich by an espionage agency hired by his former employer. After being given 60-days by Ermotti to come up with a plan for the wealth management business with co-head Tom Naratil, he’s relying on many of the levers of his success at Credit Suisse: more power to the regions, boosting lending to rich clients and moving customers who don’t need complex services to cheaper models.
As part of his overhaul, Khan is also dismantling the ultra-high net worth business as well as a miniature investment bank within the wealth unit that was seen as a drag on loan approvals and a source of costs. He also split up the business serving Europe, the Middle East and Africa and is cutting 500 jobs. Among his first challenges — with Naratil — will be to stem the unexpected outflows at the business which, in part, may have caused the bank to abandon a goal of net net money growth of 2%-4% per year.
“We have been working hard to reposition the business and execute on the strategy,” Ermotti said in a Bloomberg Television interview. “We don’t need shake ups, we just need to go into execution.”
UBS Wealth Bankers Get Dose of Credit Suisse Tonic in Khan Plan
While UBS’s job losses are smaller than at many competitors — Deutsche Bank is culling 18,000 positions — it’s the first time in years that UBS’s private bankers have felt the heat. For a decade, they’d driven growth as Ermotti pivoted UBS away from investment banking and toward the business of managing money for the rich. The strategy worked well after the financial crisis, when ultra-low interest rates fuelled a wave of wealth creation around the world.