UBS shares slide despite solid end to the year

Shares in UBS fell on Tuesday, after the Swiss bank pulled back on its targets despite a strong finish to the year.

The bank said it had ended 2019 with its best fourth quarter since 2010. But that was not enough to halt a 7% decline in annual reported pre-tax profits, to $5.6bn, while adjusted operating income was $28.95bn, compared to $29.97bn in 2018.

The adjusted cost-income ratio was 78.9%, down 51 basis points year-on-year but higher than management’s targeted 77%.

The return on reported common equity tier 1 capital (CET 1) was 12.4%, below the bank’s targeted 15%.

In the fourth-quarter, adjusted pre-tax profits rose 153% to $1.21bn after restructuring expenses, goodwill impairments and other costs were stripped out.

The core global wealth management arm saw adjusted pre-tax profits grow 160% to $787m. But the unit suffered outflows in the fourth quarter of net new money of $4.7bn, which UBS said was "driven by the Americas".

Sergio Ermotti, chief executive, said: "We finished a solid year which our best fourth-quarter adjusted pre-tax profits since 2010.

"We made progress on our strategic initiatives, reducing operating expenses by 4% and our capital position remains strong."

Looking forward, UBS said for the first quarter it expected "more typical seasonality, supporting earnings. Clients are more active, which should lead to an improvement in transaction-related revenues".

However, the bank - the world’s biggest wealth manager - also conceded that the macroeconomic and geopolitical climate remained "uncertain", noting: "Low and persistently negative interest rates and expectations of continuing easy monetary policy will continue to provide some headwinds to net interest income."

The bank is now targeting a 12-15% return on CET1 capital and a reported 75-78% cost-income ratio for 2020-2022. This compares to previous guidance for 2021 of a return on CET1 capital of 17% and a cost-income ratio of 72%.

At 1330 GMT, the shares were down 5.1% at CHF12.15.

The wealth management business is UBS’s most important division but has come under pressure as the global economy falters. Ermotti has tasked co-heads Iqbal Khan and Tom Naratil to shake up the unit, to ensure it maintains its competitive edge.