UBS, the Swiss multinational investment bank, has reported a 52% drop in profits for the first quarter of 2023. The decline is attributed to a $665 million increase in legal provisions related to US residential mortgage-backed securities. This news comes as a surprise to investors, who were expecting a better performance from the bank.
Reasons behind the decline in profits
The decline in profits can be attributed to the $665 million increase in legal provisions relating to US residential mortgage-backed securities. This increase is due to a legal settlement that the bank has reached with the US authorities. UBS had been accused of mis-selling residential mortgage-backed securities in the US, which contributed to the global financial crisis of 2008.
In addition to the legal provisions, UBS also faced a decline in revenue from its investment banking division. The division reported a 15% decline in revenue compared to the previous year. This was mainly due to lower trading activity in the fixed income market.
Impact on UBS’s share price
The news of the decline in profits has had a negative impact on UBS’s share price. The bank’s shares fell by 3.5% on the day of the announcement. However, analysts remain optimistic about the bank’s future prospects. UBS has been working to reduce its exposure to investment banking and has been focusing on its wealth management division. The wealth management division reported a 5% increase in revenue, which is a positive sign for the bank.
UBS’s response to the decline in profits
In response to the decline in profits, UBS has announced that it will be cutting costs in its investment banking division. The bank has already reduced its headcount by 1,500 and plans to cut more jobs in the coming months. The bank has also announced that it will be reducing bonuses for its investment bankers.
In addition to cost-cutting measures, UBS is also looking to expand its wealth management division. The bank has announced that it will be hiring more relationship managers and will be targeting high net worth individuals in emerging markets.
Conclusion
The decline in profits for UBS is a setback for the bank, but it is not a cause for alarm. The bank has a strong balance sheet and has been taking steps to reduce its exposure to investment banking. The increase in legal provisions is a one-time event and should not have a long-term impact on the bank’s profitability. With its focus on wealth management and cost-cutting measures, UBS is well positioned to weather any challenges in the future.
