Last updated: May 4, 2010 7:48 pm

UBS

Internal imbalances need addressing

Thank you fixed income, currencies and commodities, thank you. Given the long dark period of losses from which UBS is emerging, its better-than-trailed profit of SFr2.2bn for the first quarter is a step in the right direction. However, as figures from the Swiss bank’s European and US peers again show, first quarters are traditionally strong for investment banks – and cheap liquidity from central banks has amplified results in those fixed income, currencies and commodities (FICC) areas.

Nor is UBS any different from universal banks such as Barclays or Deutsche in relying heavily on its investment banking fortunes while other areas of the bank struggle. However, Oswald Grübel, chief executive, cannot yet afford to be choosy about the source of his earnings. After all, his first priority is to restore profitability and with it, client confidence. That, in turn, should stem the exodus of funds from the bank’s wealth and asset management businesses.

So far, so good. Net new money outflows have shrunk to SFr18bn, less than a third of the previous quarter’s leakage, enough for Mr Grübel to improve his outlook. He now expects “relatively moderate” withdrawals to continue in the near term, not the medium term as before. Although UBS remains in bad odour with its Swiss clients, wealthy investors, especially in Asia, are returning to the fold.

All the more reason, then, for him to ensure that the investment bank does not now trip up on its own internal imbalances. Take FICC revenues: although UBS is not normally a fixed income house, they leapt more than fourfold to SFr2.2bn – yet revenues at UBS’s traditionally strong equities area came in at only SFr1.3bn. UBS primed investors to expect more of the same in the second quarter. But they were unconvinced: UBS shares shed 4.5 per cent on Tuesday.

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