April 28, 2017 / 11:05 AM / 3 months ago

Primary strength boosts UBS’s investment bank

LONDON, April 28 (IFR) - UBS’s decision to reduce its fixed income trading business in favour of equities, underwriting and advisory work showed further signs of being a winning formula in the first quarter as its investment bank reported a 12% year-on-year rise in revenues to SFr2.1bn (US$2.12bn).

Equities has proved tricky for most major investment banks recently but UBS said revenues rose 2% to SFr934m. On the primary side fees from equity capital markets bounced back from a very weak quarter a year ago, surging 64% to SFr252m.

“We had a good performance in primary markets year on year,” said Kirt Gardner, chief financial officer. “We had a nice rebound off a low base last year. [In APAC] We saw improvement in equity derivatives business and our prime brokerage had a strong quarter.”

The bank also benefited from the recovery in debt capital markets appetite, with fees up 45% to SFr210m. Advisory also performed well, showing a 26% increase to SFr166m. Overall, corporate client solutions, encompassing advisory and underwriting, rose 51% to SFr718m.

UBS now plays the fixed income secondary markets with an asset-light model. That meant it missed out on the general strong improvement in trading conditions here. Revenues fell 6% to SFr452m, with the bank blaming, like others, lower volatility and client activity in FX and rates.

However, this was less of a problem than at other firms since it accounts for only a quarter of overall investment bank revenues now. In turn the reduced investment bank itself makes up 28% of group revenues.

But the unit is more profitable than many franchises and made a 21% return on attributed equity, up from 13.1% a year earlier as it focused on cost reduction.

Direct headcount reduction year-on-year in the investment bank was 7%. However, this was not reflected in the earnings statement, with personnel expenses up 12% in the division to SFr818m in the quarter, because of higher bonuses.

Speaking about the overall group, chief executive Sergio Ermotti said: “We are not managing on head count but on costs. You will see some headcount come back into the organisation as it was outsourced previously.”

Looking ahead he remained cautious. “There is no real normalisation yet. The only thing we see as a constant is clients have better sentiment and willingness to invest. In the financial markets business we need to see something more concrete,” he said. (Reporting by Christopher Spink)

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