What's going on?
Big Swiss bank UBS reported weaker-than-expected 2018 profit on Tuesday – and its shares fell 4%.
What does this mean?
UBS has been busy shifting away from less predictable investment banking activities to focus more on looking after very rich people’s money (including that of half the world’s billionaires). It’s now the world’s largest such “wealth manager” – with this contributing over 60% of UBS’s profit last year. These changing priorities may go some way toward explaining why the bank’s stock-trading revenue fell 13% last quarter – despite it rising at American competitors.
But UBS’s wealth wardens got smacked by the stock market declines and uncertainty that characterized late 2018, with investors pulling $8 billion last quarter. Since the more money UBS looks after, the more money it makes from fees and economies of scale, the vanishing cash meant the bank’s profit forecast for 2019 was a conservative one.
Why should I care?
For markets: Credit where Credit’s Suisse.
While investors sold UBS shares on Tuesday, they didn’t read its shortcomings across to fellow Swiss bank Credit Suisse. In an interview at this week’s World Economic Forum (in Switzerland, no less), the bank’s CEO hinted that the fourth quarter hadn’t been overly kind to Credit Suisse either. But he also noted pointedly that the amount of money in its own wealth management business – responsible for a quarter of revenue – remained “resilient”. On February 14th, investors will find out whether their love affair with Credit Suisse continues…
The bigger picture: World economic humdrum.
The International Monetary Fund – a sort of bank for countries – cut its 2019 global economic growth forecast for the second time in just over three months on Monday. The Fund nudged up its projections for the British and Japanese economies, and kept Chinese and US predictions steady. But recent weak data from Germany and Italy in particular means it now thinks the world economy overall will only grow 3.5% in 2019 – the least in three years.