UBS loses $774m on Archegos trades

Swiss bank UBS said it had lost $774m on trades at its prime brokerage unit linked to the blow-up of family office Archegos Capital, which dragged on otherwise robust first-quarter earnings. 

The hit was less than that suffered by its peers, which included a $5.5bn charge at the bank’s nearest rival Credit Suisse.

UBS on Tuesday reported a first-quarter net profit of $1.8bn, up 14 per cent year-on-year, and comfortably ahead of analysts’ expectations despite the dent caused by Archegos, as buoyant markets drove a surge in client activity.

The bank said it had fully unwound its exposure to Archegos, resulting in an overall reduction of $434m to its quarterly net profits. 

Despite the loss, capital ratios improved at the bank, UBS said. The quarter-end common equity tier capital ratio — a measure of bank capital to assets — was 14 per cent, the bank said, ahead of guidance at 13 per cent. 

“We are all clearly disappointed and are taking this very seriously,” chief executive Ralph 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. This never impeded our ability to serve our clients.”

Excluding investment banking — where profit before tax fell 42 per cent — profits rose in all of UBS’ other main divisions during the quarter. Assets invested on behalf of clients rose by more than $100bn in the first three months of 2021 to $4.2tn. 

Its flagship wealth management business posted a 16 per cent rise in profits before tax to $1.4bn. The boost came from clients shifting into higher fee generating profits, but also an increasing use of leverage, UBS revealed, with lending to wealthy clients — including family offices similar to Archegos — increasing to $219bn. 

The asset management division also benefited from higher fee income, reporting a 45 per cent year-on-year rise in first-quarter profits before tax to $227m.

Performance fees climbed 153 per cent in the division during the quarter as markets roared back on promises of government stimulus and the potential for vaccines to bring an earlier than expected end to the economic restrictions of the coronavirus pandemic. 

UBS’ Swiss universal bank also performed well, as pre-tax profit climbed 11 per cent to $358m. 

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