UBS Results

UBS Bumps Down to Earth

UBS CEO Sergio Ermotti was able to reveal good results for 2015.
  • Why it matters

    Why it matters

    UBS has outperformed Deutsche Bank and other European rivals by scaling back its investment banking business and focusing on wealth management, but investors are still jumpy about returns.

  • Facts


    • UBS increased its net profit by 79 percent to €5.8 billion ($6.3 billion) in 2015. It has more than €2 trillion under management.
    • Deutsche Bank posted a record loss of €6.8 billion in the same year. It has around €1 trillion of assets under management.
    • Major European banks including Deutsche and Credit Suisse are following UBS and increasing their asset management business.
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Sergio Ermotti, the chief executive of UBS, smiled when he was asked on Tuesday if he’d consider a large takeover, of, say, Deutsche Bank for example.

“I never comment on such speculation even if it sounds, shall we say, interesting,” he told the Swiss bank’s annual results news conference. Then, to nip any takeover talk in the bud, he added: “We don’t need a big deal.”

But a closer look at the results shows the question wasn’t that far-fetched. UBS increased its net profit by 79 percent in 2015 to €5.8 billion ($6.34 billion). John Cryan, UBS’s chief financial officer following the 2008 crisis and now chief executive of Deutsche Bank, reported a record loss of €6.8 billion.

Moreover, Mr. Ermotti’s shareholders will be paid an increased dividend of 0.85 Swiss francs ($0.83) per share, while Mr. Cryan has scrapped the dividend for 2015 and 2016 to help cover the costs of an expensive restructuring.

UBS has a stock market value of almost €60 billion, though it hasn’t been immune to the turmoil that has struck many European banks recently. Shares have dropped nearly 20 per cent since the start of this year.

Compare that, however, to Deutsche Bank’s €22-billion valuation, reached after its dramatic share-price slump of more than 30 percent so far this year. On Wednesday morning, the share price fell yet another 4.5 percent to below €15 per share, its worst level since the height of the 2008 financial crisis, though by 3 pm it had climbed slightly above €15 again. Just six months ago, it was worth more than twice as much.

Deutsche Bank is Germany’s biggest bank, but it’s shrinking by comparison with its European peers. Even Denmark’s Danske Bank has a higher stock market value, of €24.9 billion, following a good set of results last year.

After the turmoil of the financial crisis in 2008, UBS was quick to focus on its classic strength of managing people’s wealth.

Still, Deutsche is hardly the only European bank to struggle. In the past six months, the share price slide suffered by European banking stocks has wiped out more than €400 billion of value, according to figures provided by news agency Bloomberg. That’s about twice the annual economic output of Greece.

Fund manager Helmut Hipper of Union Investment is worried that banks won’t regain the confidence of investors anytime soon. “The outlook remains difficult,” he said. Banks have failed to return to the profitability they enjoyed before the financial crisis “and now there are fears that the best is over again.”

Andreas Thomae, banking analyst at Germany’s Dekabank, said: “The savings programs launched by the banks are still too low to offset the pressure on earnings.”

By comparison, UBS is doing well because it started its own reboot much earlier. The Swiss bank has achieved its highest profit in five years, reaping the rewards of a forward-looking strategy adopted after the 2008 financial crisis – a strategy that many say Deutsche Bank should have taken up many years ago as well.

After the turmoil of 2008, when UBS became one of many European banks to be bailed out by their government, the Swiss bank was quick to refocus on its classic strength of managing people’s wealth, while cutting back its capital-intensive investment banking operations. Mr. Cryan, now at Deutsche Bank, helped to lead this drastic shift at UBS.

Rivals, including Deutsche and Credit Suisse, kept banking on the securities business until they too finally began to change course a few years ago. Now they’re hurrying to emulate UBS.

It makes sense. Managing the assets of the rich and super-rich is a stable, low-risk and reliable business model, which explains why Europe’s banks are piling into that market in these uncertain times.

But even fund management isn’t immune from market turmoil, as the UBS results showed. Its chief financial officer Kirt Gardner said some big clients in markets such as Russia, the Middle East and Brazil had needed liquidity amid economic turmoil and plunging oil prices, and had withdrawn funds in the fourth quarter.


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Despite that setback, few banking analysts would criticize the bank for focusing on asset management. Deutsche Bank is following suit. Its new global head of wealth management, Fabrizio Campelli, said in a memo to staff last month that Deutsche aims to become one of the world’s top five wealth managers.

The division is growing rapidly, albeit from a far lower base than UBS. Deutsche’s customer deposits in its asset and wealth management division amount to €1.1 trillion. At UBS, total wealth under management stands at €2.4 trillion.

UBS isn’t just bigger, it’s more profitable too. In 2015, Deutsche’s AWM division generated pretax profit of €1.3 billion, a rise of 23 percent. UBS’s equivalent reached a pretax profit of €3.7 billion.

Still, Mr. Ermotti and UBS Chairman Axel Weber have little cause for schadenfreude. Despite presenting robust results, the bank’s share price tumbled more than 8 percent Tuesday because investors were disappointed by the dividend outlook.

Mr. Ermotti declined to be drawn on whether the payout for 2016 would be higher than for 2015. “The dividend speculation was an important share-price pillar, that’s gone now,” said Andreas Brun, an equity analyst at Zürcher Kantonalbank in Zurich, Switzerland.

The shares were also hit by a fourth-quarter net new money outflow of 3.4 billion Swiss francs ($3.3 billion) at its wealth management arm. The share price has fallen more than 20 percent since the start of 2016. That’s as bad as the declines suffered by Britain’s Barclays and Swiss rival Credit Suisse, which analysts expect to report a loss of up to 2 billion francs on Thursday.

Like Deutsche, Credit Suisse under its new chief executive Tidjane Thiam has had to make major writedowns that will wreck its 2015 earnings.

Analysts see three reasons for the share price losses at European banks: Fear of an economic slowdown, chronically low interest rates and the impact of falling oil prices.

But these factors aren’t hitting all the banks with the same force. “One has to acknowledge that UBS is something like the one-eyed man among the blind,” said one top German banker. At least UBS had come up with a tried and tested business model, unlike Deutsche Bank, Credit Suisse or Barclays, which were all still stuck in the middle of restructuring programs, the banker said.


Holger Alich is Handelblatt’s Switzerland correspondent, covering the financial industry. Michael Maisch is the deputy chief of Handelsblatt’s finance desk in Frankfurt am Main. To contact the authors: and

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