Banking stocks under pressure after UBS disappoints

Pre-tax profits rose 2% year-on-year to $862m, well below analyst estimates of around $985m, while its core global wealth management unit reported net new money outflows of $7.9bn, as ultra-wealthy clients withdrew from turbulent stock markets and built up cash positions instead.

The asset management arm saw investors withdrawn $4.9bn of assets in the fourth quarter.

The investment banking arm also struggled with “challenging market conditions”, said UBS, which affected revenues from both equities and corporate client solutions.

Full-year net pre-tax profits at Switzerland’s biggest bank were ahead 25% at $4.9bn, while the cost-income ratio improved 3 percentage points to 79%.

Chief executive Sergio Ermotti said the fourth quarter had “delivered a resilient performance despite historically tough market conditions” and that there had been “some normalization in markets” in the first few weeks of 2019.

But overall the bank struck a cautious tone for the current year: “Lack of progress in resolving geopolitical tensions, rising protectionism and trade disputes, along with increased volatility, which affected investor sentiment and confidence in the second half of the year, and particularly in the fourth quarter, would affect client activity in the first quarter of 2019.

“Lower invested assets as a result of market declines in the fourth quarter are expected to affect recurring revenues in global wealth management and asset management.”

The disappointing results weighed on banking stocks across Europe. As at 11.30am GMT, UBS was down 4% while in London, Barclays, HSBC and Royal Bank of Scotland were all trading around 1% lower.

Michael Hewson, chief market analyst at CMC Markets, said: “In the latest sign that European banks continue to struggle with the negative rate environment as well as rising political uncertainly, UBS announced that while it saw fourth-quarter net profits improve, its latest numbers showed an outflow in client funds as clients moved into the relatively safety of cash.

“Ermotti struck a cautious tone on the outlook for the first-quarter, with client activity likely to remain affected by ongoing concerns about geopolitics and trade.”