UBS Group AG yesterday posted a US$774 million hit from the implosion of Archegos Capital Management LLC and said it plans to review its risk procedures after it joined Morgan Stanley in surprising investors over the size of the impact from the collapse of the US family office.
Even with the Archegos hit, UBS reported better-than-expected first-quarter profit of US$1.82 billion as wealth management income climbed.
Switzerland’s largest bank had remained quiet on the collapse of Bill Hwang’s family office for weeks, even as its biggest rival, Credit Suisse Group AG, unveiled a US$5.5 billion hit and Japan-based Nomura Holdings Inc confirmed losses of US$2.3 billion for fiscal 2020-2021.
While Goldman Sachs Group Inc, JPMorgan Chase & Co and Wells Fargo & Co all limited or avoided hits, Morgan Stanley was criticized by some investors and analysts for revealing a US$911 million loss during its earnings.
The “Archegos losses have taken the shine of these results,” JPMorgan analysts Kian Abouhossein and Amit Ranjan wrote in a note.
The turmoil at Credit Suisse had afforded UBS chief executive officer Ralph Hamers a period of relative calm, even as the bank fights a US$4.5 billion penalty in France and the new CEO himself saw his short tenure complicated by a Dutch probe into his role in a money-laundering case at his former employer ING Groep NV.
Hamers said that UBS expects an additional US$87 million trading loss in the second quarter from exiting its remaining Archegos exposure this month.
“We are all clearly disappointed and are taking this very seriously,” he said. “A detailed review of our relevant risk management processes is under way and appropriate measures are being put in place to avoid such situations in the future.”
Hamers, speaking in a Bloomberg Television interview, said that the bank would be seeking more transparency from family offices and other big clients at the wealth management division, although there are no plans to cut back the prime brokerage business as Credit Suisse plans to do.
Some lenders were blindsided by the positions that Hwang had accumulated before the meltdown.
The Archegos impact also overshadowed a strong quarter at the bank’s key wealth management business, where UBS benefited from higher average fee-generating assets and transaction fees, compensating for a decline in net interest income.
The unit, led by Iqbal Khan and Tom Naratil, posted better-than-expected pretax profit of US$1.41 billion, the bank said in a statement.
It gave a mixed outlook for the second quarter, warning of lower seasonal activity, while saying that higher asset prices should have a positive effect on recurring fee income.
At the investment bank, the Archegos hit drove down equities revenue by 20 percent, although it would have gained 48 percent excluding the hit.
Fixed-income trading declined about 37 percent.
Overall, UBS reported net income of US$1.82 billion compared with its estimate of US$1.63 billion, and wealth management pretax profit of US$1.4 billion, compared with its estimate of US$1.19 billion.
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