UBS first-quarter profit up 14%, but CEO ‘very disappointed’ with hit from Archegos scandal

FAN Editor

LONDON — UBS reported on Tuesday net income of $1.8 billion for the first quarter of 2021, as it revealed a hit to earnings from the scandal involving Archegos Capital.

The Swiss bank said revenues were $774 million lower as a result of the default by the Archegos hedge fund, which collapsed last month after taking on too much risk. The U.S.-based family office was a client of UBS’ prime brokerage business.

UBS said Tuesday it had exited all exposure to Archegos and any related losses in the second quarter would be “immaterial” for the bank.

A number of banks have been affected by the scandal, including Credit Suisse, which reported last week a net loss for the quarter on the back of a 4.4 billion Swiss franc ($4.8 billion) hit from the collapse of the same U.S. hedge fund.

Speaking to CNBC’s Joumanna Bercetche on Tuesday, UBS CEO Ralph Hamers said the bank was “very disappointed” by the hit.

“We are taking it very seriously. We have started a very detailed review of the different prime brokers’ relationships that we have, the family offices’ relationship that we have as well, the risk management processes that we have, in order to really get the lessons learned and make sure we implement them so that going forward it doesn’t happen again,” he said.

Hamers added that the prime brokerage business was “strategic” and that its capabilities support the wider business, but nonetheless UBS needed to learn from what happened with Archegos.

UBS’ net income for the first quarter marked a 14% increase from a year earlier. Analysts had expected the figure to come in at $1.6 billion over the period, according to Refinitiv.

Other highlights for the quarter:

  • Operating income hit $8.7 billion from $7.9 billion a year ago.
  • Operating expenses came in at $6.4 billion from $5.9 billion a year ago.
  • CET 1 ratio, a measure of bank solvency, reached 14% versus 12.8% a year ago.

Hamers said the bank had seen “continuous heightened client activity” this quarter.

“Actually performance was really strong across wealth management, asset management, the investment bank and also the activities here in Switzerland,” he told CNBC.

“So from that perspective actually a real, well balanced and strong quarter if it weren’t for the loss that we also had to take, but even after the loss, we performed at a 18.2% return on CET1, which is a really good result.”

Going forward, UBS said that revenues in the second quarter will be affected by “seasonal factors,” such as lower client activity compared to the first three months of the year. The Swiss bank expects a positive effect from higher asset prices, but warned that there is “continued uncertainty” about the economic recovery, which could impact its next earnings.

“We should all be aware there is a lot of optimism in the market and clearly there is a lot of good news that has come to the market, but I would also want to look at some of the challenges that we see. Will the pandemic be over? That is the question. Will vaccination continue the way it is? How will the economy truly recover?” Hamers said.

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