Swiss Banks’ Defense Against Cautious Clients

UBS suffered a slowdown in client activity but it has defenses against that

By Paul J. Davies



UBS UBS +2.96%▲ is fine: It’s the Swiss bank’s clients you should worry about.

Trading and risk taking among UBS’s global base of wealthy customers slowed in the second quarter, according to results reported Tuesday.

The bank has built good defenses against this in recent years by shifting the focus of its private banking and wealth management business away from trading commissions to regular fees from investment advice and asset management. Rivals like Credit Suisse are following suit. 
But even as UBS celebrated 10-year highs for quarterly net interest income and recurring fee income, its transaction revenue fell more rapidly than expected. The question is whether clients’ reticence is temporary, bought on by nervousness at trade-war saber rattling, or if it signals a turn in the market cycle after years of central bank stimulus.

It is likely a bit of both. That puts a damper on the outlook for wealth management and ultimately investment banking over coming years. 
Sergio Ermotti, UBS’s CEO, speaks in Basel, Switzerland, on May 3.






Sergio Ermotti, UBS’s CEO, speaks in Basel, Switzerland, on May 3. Photo: Georgios Kefalas/Associated Press


UBS’s investment bank did well enough in the second quarter, especially equities trading, which tracked U.S. peers with revenue up 15% in dollar terms versus the second quarter last year. That bodes well for other equities-focused European banks like Credit Suisse and Société Générale .

But in global wealth, which supplies 55% of UBS’s revenue, there were signs of a slowdown. New money from clients was weak. Historically fast-growing Asia slowed dramatically compared with last year, while outflows from the U.S. arm more than offset Swiss inflows.

UBS’s existing clients were less active, too. Transaction-based revenue dropped 11% in dollar terms versus a year ago. UBS has a strong bias toward Asia, where it is by far the biggest Western wealth manager, and Asian clients were notably more risk averse. This may be partly nervousness over political and trade tensions, but it is also linked to the strengthening dollar, which brings with it tighter monetary conditions and lower liquidity.

UBS and other wealth managers are protected against a sudden drop in revenue, but finding growth is turning into a grind.

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