UBS takes surprise US$774 million hit from Archegos meltdown

ZURICH (BLOOMBERG) – UBS Group posted an unexpected US$774 million (S$1.03 billion) hit from the collapse of Archegos Capital Management, joining United States rival Morgan Stanley in surprising investors over the extent of the impact from the US hedge fund’s implosion.

The hit helped drive a US$554 million decrease in revenue at the Zurich-based bank’s global markets business, overshadowing what would otherwise have been higher revenue on increased equity derivatives and cash equities, according to a statement from the bank on Tuesday (April 27). Overall, the bank reported better-than-expected profit of US$1.82 billion, even as Archegos reduced net income by US$434 million.

Switzerland’s second-largest bank had stayed mum on the collapse of Mr Bill Hwang’s family office for weeks as rival Credit Suisse Group unveiled some US$5.5 billion in losses tied to Archegos. Nomura Holdings also warned of potentially steep losses, while Goldman Sachs Group, JPMorgan Chase & Co and Wells Fargo all managed to limit or avoid losses. Morgan Stanley was criticised by some investors and analysts for revealing a US$911 million hit at the time of its earnings.

The turmoil at Credit Suisse had afforded UBS chief executive officer Ralph Hamers a period of relative calm, even as the bank fights a US$4.5 billion penalty in France and the new CEO himself saw his short tenure complicated by a Dutch probe into his role in a money-laundering case at his former employer ING Groep. The bank said that it exited its remaining Archegos exposure in April and would see “immaterial” related losses in the second quarter.

“We are all clearly disappointed and are taking this very seriously,” Mr Hamers said. “A detailed review of our relevant risk management processes is under way and appropriate measures are being put in place to avoid such situations in the future.”

The Archegos hit drove down equities revenue by 20 per cent, though it would have gained 48 per cent excluding the hit. Fixed income trading declined about 37 per cent. The key global wealth management business did better than expected, with pre-tax profit of US$1.41 billion, compared with estimates of US$1.19 billion. Recurring net fee income increased 8 per cent, mainly driven by higher average fee-generating assets. Transaction-based income rose 6 per cent, while net interest income declined 3 per cent.

Mr Hamers is taking a deep look at where he can cut costs and digitalise operations, including in the high-touch business of serving the world’s wealthiest people. He wants to use artificial intelligence to target how to sell more products to the world’s wealthy and rethink what markets the bank operates in, with a heavy focus on Asia.

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