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UBS Warns Trading Rally Won’t Last After Beating Wall Street

UBS Warns Trading Rally Won’t Last After Beating Wall Street

(Bloomberg) -- UBS Group AG warned that a surge in trading revenue that put it ahead of Wall Street rivals isn’t sustainable as the wild market swings of the first quarter begin to abate.

The Swiss bank’s trading desks posted a 44% increase in revenue, beating the average 30% gain at U.S. peers as well as crosstown rival Credit Suisse Group AG. The gain was driven by foreign-exchange and rates and credit trading, which doubled to $889 million in the quarter. The larger equities business grew 18%, trailing Wall Street.

The results are a boost to a unit that has been scaled back massively in Chief Executive Officer Sergio Ermotti’s pivot to wealth management, and which was shaken up again last year after it underperformed rivals. Finance chief Kirt Gardner warned trading won’t stay at such elevated levels, forecasting a decline from the first quarter.

UBS Warns Trading Rally Won’t Last After Beating Wall Street

Widespread lockdowns to combat the spread of the coronavirus whipsawed markets last month, creating the wildest market swings in more than a decade. While the economic toll is devastating for businesses, with the IMF forecasting the biggest recession since the Great Depression, frenzied trading has resulted in higher revenue at investment banks.

At UBS, the investment bank also saw an 83% jump in income from advising on acquisitions, as well as higher income from underwriting capital markets deals. But some of those deals may have stung the bank when turmoil hit the markets.

Elevator Deal

The investment bank took a $183 million writedown on its leveraged capital markets, corporate lending and real estate finance portfolios. UBS is an underwriter on the buyout of Thyssenkrupp AG’s elevator division, the largest such deal in Europe in a decade. When the pandemic hit, many banks that had pledged to finance the transaction were left unable to sell the debt in the market, forcing them to keep it and write down its value.

Risk-weighted-assets increased 27% as clients drew down on lending facilities, leading to a decline in the bank’s capital buffer. Gardner said UBS would focus on using its capital to lend to wealth management clients, rather than for traditional investment banking activities.

©2020 Bloomberg L.P.