Bookies price favourites expensively. UBS lacks that distinction despite leading the field in global wealth management. Shares in the Swiss wealth manager and lender trade at around tangible book value after a panicky 7 per cent drop on Tuesday morning. Blame the heavy going brought by falling asset prices and blame poor form — second-quarter results missed estimates.
The reaction looks overdone, given it has a strong franchise underpinned by recurring revenues on trillions of relatively sticky invested assets.
Analysts griped that adjusted profits before tax missed estimates by 10 per cent. Recurring fee income fell more than expected. Global wealth management suffered a sharp 12 per cent quarter-on-quarter drop in fee-generating assets. This key division produces about half of UBS’s pre-tax profits. Both the spread earned on assets and the net inflow of new fee-generating funds were weak.
Net new fee-generating assets, an important metric for the global wealth division, fell by $3.5bn in the Americas, bringing the total for the region to $773bn. Costs relative to income are 85 per cent for the Americas, 10 percentage points higher than for the division as a whole. UBS is chasing market share in competition with the likes of Morgan Stanley.
The division’s total fee-generating assets slipped $170bn to $1.24tn amid slumping markets. Chief executive Ralph Hamers says markets are none too healthy at present. This hardly counts as a top-level insight, given that anyone with smartphone access to stock prices would say the same.
The investment bank had a poor result compared with its US peers. Mostly, that disappointment came in fixed income. Here, revenues only rose 19 per cent against the average of a third in the US. Yet UBS scaled back bond trading years ago, preferring equities, which did reasonably well in comparison. A sprinkling of one-off costs from the corporate centre completed the picture of woe.
UBS remains worth holding on to as a medium-term investment. It is a lot cheaper than Morgan Stanley, which is trading at almost twice its tangible book value. Expect to cover losses and then some when the asset cycle turns.
