UBS investment banking profits fall by fifth

Investment banking profits at UBS fell by a fifth in the first quarter as Europe's third-largest bank by market capitalisation reported a drop in activity in fixed income and foreign exchange markets.

The bank warned that market sentiment had weakened further since the end of March. Income from fixed income trading fell 19 per cent in the three months to the end of March, while forex trading was down 10 per cent. The figures are one of the first tangible signs of a slowdown in banks' fixed income trading revenues that many investors have been anticipating as interest rates continue to rise.

The performance at UBS contrasts with that of Deutsche Bank, which last week reported strong growth in fixed income revenues. The large US investment banks also reported flat or rising revenues.

UBS pointed out that the decline was relative to record trading profits in the first three months of last year. The Swiss group has also decided not to develop a commodities trading business an area of strong profit growth for some rivals.

Clive Standish, finance director, said UBS had reduced the amount of capital at risk in fixed income trading during the quarter, adding that the bank's overall performance was not dependent on trading income.

“You would not reward us for going aggressively after every dollar of fixed income revenue,” he said.

He warned investors not to extrapolate from the first quarter, pointing out that markets could pick up again later in the year. Analysts have been anticipating a reversal in fixed income profits since spreads started widening in mid-March.

“When you get uncertainty or the sudden reversal of a long trend, it can unsettle client activity,” said Jon Peace, analyst at Fox-Pitt, Kelton.

Investment banking weakness was more than offset by continued growth in wealth management and asset management, which attracted SFr32.3bn (€21bn) in new assets. Overall, pre-tax profits from continuing operations rose 15 per cent to SFr3.6bn.

UBS said its return on equity had risen to 32.4 per cent from 31.3 per cent a year ago, well ahead of its 15-20 per cent target. The shares slipped 1.5 per cent to close at SFr94.85.

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