UBS Investment Banking Pain Seen Persisting Into Second Quarter

UBS Group AG said it expects suppressed trading and investment banking revenue to persist this quarter as clients grapple with geopolitical tensions and higher interest rates.

(Bloomberg) — UBS Group AG said it expects suppressed trading and investment banking revenue to persist this quarter as clients grapple with geopolitical tensions and higher interest rates.

The bank is seeing limited client volume in equities, while companies are still holding off major deals or capital raising because of uncertainty around the trajectory of rates, Chief Financial Officer Sarah Youngwood said alongside the bank’s first-quarter results on Tuesday.

Equities trading revenue declined about 23% in the first quarter compared to the same period a year ago, below the 14% average decline among Wall Street banks. Prime brokerage was a bright spot, helping drive a 21% increase in revenues for financing activity.

UBS’s foreign exchange, rates and credit traders eked out a 1% gain in revenue, mainly driven by credit. That beat results at banks including Morgan Stanley and Goldman Sachs Group Inc. On average, US banks saw fixed income, currencies and commodities trading decline by 1%.

The muted outlook for the investment bank chimes with UBS’s broader warning that wealthy clients are turning increasingly risk averse and activity risks being subdued in the second quarter. More positively, the bank said, rising rates will continue to benefit net interest income.

Read more: Goldman Traders Miss Out on Wall Street’s Fixed-Income Boom (4)

Muted deal issuance and deal flow pulled capital markets revenues down 37% at UBS, while advisory revenue fell 21%. Investment banking activity has been subdued in recent quarters because of market volatility after the onset of the Ukraine war and rampant inflation.

Going forward, UBS will need to integrate Credit Suisse Group AG’s investment bank as part of the acquisition of its smaller rival. Credit Suisse has a larger fixed income and credit trading business and has historically been more present in leveraged capital markets.

UBS is planning to reduce the risk and resource consumption of Credit Suisse’s investment bank, with the future combined entity representing 25% of the group’s risk weighted assets.

More stories like this are available on bloomberg.com