UBS third-quarter profit slumps; investment banking down 59% on ‘persistent’ negative rates

FAN Editor

Swiss-lender UBS saw a 16% drop year-on-year in its third-quarter profit and a 59% slump in investment banking amid a “challenging environment.”

The bank’s net profit attributable to shareholders for the third quarter came in at $1.049 billion. This is lower than the $1.2 billion figure reported in the same quarter in 2018.

Here are some key highlights for the quarter:

  • Operating income hit $7 billion versus $7.5 billion a year ago
  • Return on tangible equity stood at 8.7% versus 11.1% a year ago
  • Common equity tier 1 capital ratio of 13.1% versus 13.5% a year ago

UBS also said it expects to take restructuring expenses of $100 million in the fourth-quarter of 2019. UBS, like its peers, is looking at ways to restructure as banks continue to shrink and face headwinds from low and negative interest rates.

“Low and persistent negative interest rates and expectations of further monetary easing will adversely affect net interest income compared with last year,” UBS said in a statement Tuesday.

“As we execute on our strategy, we are balancing investments for growth while managing for efficiency,” UBS added.

Rising rates are good for banks since they are able to lend out money to investors at a profitable rate of interest. Lower interest rates restrict the bank’s ability to make profits thus adding pressure on margins.

UBS announced in August that it would introduce a 0.6% annual charge on cash savings of over 500,000 euros ($557,642.50) and 0.75% on savings of over 2 million Swiss francs ($2.03 million) in order to pass on the cost of negative rates.

Speaking to CNBC on Tuesday, CEO Sergio Ermotti said: “The entire industry is faced with the same challenge on negative rates, so we are unfortunately forced to pass some of this pain, so we are not really passing all the pain of negative rates but I think it is inevitable that we will see, probably, the rest of the industry following on that.”


UBS continues to face headwinds in its investment banking and global wealth management business.

The lender’s investment banking business saw a 59% decline in the third-quarter of 2019 in terms of operating profit before tax (adjusted) which fell from 507 million CHF ($505 million) to $203 million. This as compared to the same quarter last year.

Investment banking is a specific division of banking related to the creation of capital for other companies, governments and other entities.

Meanwhile, the bank’s global wealth management business saw an 8% decline as compared to the same quarter last year.

Addressing the bank’s struggles with net interest and recurring fee income, Ermotti said the lender had been able to mitigate lower rates with higher transaction volumes, and was seeking to protect that dynamic.

“When I look at recurring fees, of course there you can see our clients’ risk appetite is impacting recurring fees. We see them still buying into mandates but with lower risk profile, therefore with lower margins and in that sense, it was helpful in the third quarter to see the transaction line offsetting some of this,” he told CNBC’s Joumanna Bercetche.

CNBC’s Elliot Smith contributed to this report. 

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