UBS's Ermotti Says Trade Tensions Are Hurting Client Trades

(Bloomberg) -- UBS Group AG Chief Executive Officer Sergio Ermotti said trade tensions are adding to client uncertainty and weighing on trading revenue from Asian wealth clients after U.S. President Donald Trump slapped $200 billion of tariffs on Chinese goods.

“It’s probably even worse than what I saw 2015,” Ermotti said in an interview with Bloomberg TV’s Manus Cranny on Thursday. “Trade tensions are adding more uncertainty, you can feel it. Somehow, it’s reflected in market valuations -- look at where the Chinese and Hong Kong market are pricing."

That uncertainty has put pressure on transactional revenues, or income generated when clients buy and sell assets, in wealth management in the third quarter, the executive said at a conference in London later Thursday. These are down 10 to 11 percent "as we speak," Ermotti said. The investment bank, on the other hand, is enjoying “pretty solid” momentum, he said, as institutional clients remain upbeat.

The world’s two biggest economies are digging in for what could be a long and bruising trade war, testing the resilience of the strongest global upswing in years. The Trump administration introduced new tariffs on Chinese goods this week. China responded with duties of its own on $60 billion in U.S. products.

Asian clients at UBS have been pulling out of certain sectors at home, such as technology, and reinvesting in U.S. stocks, though smaller amounts, Ermotti said.

UBS, like other wealth managers, is increasingly reliant on Asia, the world’s biggest and still fastest growing market. Unlike most other private banks that are focused exclusively on managing money for Chinese clients from offshore hubs, the Swiss giant is trying to gain a foothold in the Chinese onshore wealth management business.

‘Bumpy’ Road

Ermotti said he expects Asia to continue to grow in coming years, but the path will likely be more “bumpy.”

Amid the recent turmoil in the region and in emerging markets more broadly, and concern about a potential contagion, Credit Suisse Group AG Chief Executive Officer Tidjane Thiam on Wednesday struck a relaxed note.

“I never really worry about emerging-market crises. The emerging markets that are well-managed are fine and that’s all there is to it,” Thiam said at the Bloomberg Global Business Forum in New York.

Ermotti has run UBS since 2011, making him one of the longest-serving CEOs of a major European bank. He’s overseen a sweeping tilt toward wealth management that became a blueprint for rivals. But as banks such as Credit Suisse start to close in, some investors have approached UBS to ask about the lackluster share price performance.

More Savings

After announcing 100 million francs of cost cuts earlier this year from the merger of the Swiss bank’s wealth management operations, Ermotti said there is scope for more savings, though on a smaller scale.

The executive said he’s not planning to announce any new strategic goals at an investor day later this month. Instead, his team will “better explain” how to achieve its plans. Wealth management, the bank’s most important business, is expected to grow twice as quickly as the global economy over the next five to ten years, he said, adding that the bank is well positioned in the U.S. and Asia.

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