UBS takes a hit from Archegos scandal as it reports first-quarter net profit of $1.8 billion

FAN Editor

The logo of Swiss banking giant UBS engraved on the wall is seen on its headquarters on May 8, 2019 in Zurich.

Fabrice Coffrini | AFP | Getty Images

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.

“Our first quarter results also factored in a loss related to the default by a single US-based prime brokerage client. We are all clearly disappointed and are taking this very seriously,” Ralph Hamers, UBS’s CEO said in a statement, adding that a detailed review of risk management was underway.

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.

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.

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.

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