UBS (LON:UBSGCHF) clients repatriate $15 billion in the final quarter of 2016 as wealth management margins decline
Investing in Swiss banking giant UBS is nothing short of a risky business. Despite share prices creeping up moderately by 0.37% on Tuesday 31 January, the firm reported last Friday that it’s annual net worth had fallen by a staggering 46%. Total net profit for 2016 totalled 3.3 million Swiss francs, a figure that nearly halves the 6.2 billion reported in the previous year. Moreover, the firm suffered a net 15.2 billion francs in withdrawals throughout the final quarter of 2016, which can be attributed to it’s clients moving money out of Switzerland before the government can distribute their data with tax authorities under newly established tax regulations, a predicament that is forecast to continue throughout 2017.
UBS Wealth Management suffered net outflows of client assets of the summation 4.1 billion Swiss francs, as a result of the new tax amnesty programs in emerging markets. UBS Chief Executive Officer Sergio Ermotti claimed in an interview with Bloomberg that clients were expected to continue repatriating money throughout 2017, but the trend should begin to decline come 2018. Furthermore, the firm is facing potential litigation costs of a hefty sum as countries force UBS, alongside other private banks, to forgo investors’ assets that fail to comply with tax regulation. Sebastian Dovey, who is a managing partner at the London-based consulting firm Scorpio Partnership, claimed,
the tax amnesties are a process of rolling thunder for international wealth managers...UBS, as the largest wealth manager, is in the spotlight for these issues.
Nevertheless, despite litigation threats, overall final-quarter group net profit was valued at 738 million francs, which surpassed the Reuters estimate of 339 million by a significant degree. These results can likely be attributed to a better than expected performance in the investment bank's equities business. However, the unit's overall operating income plummeted for the seventh quarter running, and the bank's share prices fell by more than 3.4% at 16.48 francs by 13.00 GMT on Friday, at such time when the Stoxx 600 Europe banking sector index (.SX7P) was likewise down by 0.8%.
Statistics show that UBS acquires a mere 73 cents in revenue for every $100 it oversees in wealth management. This is reported to be the lowest value in the bank’s history, according to Citigroup analysts under the supervision of Andrew Coombs, who in a statement referred to the wealth management trends as “concerning”.
Resultantly, with earnings from the core wealth management division under intense strain, the world's largest private bank looks set to hedge it’s bets on growing confidence among US clients who are expected to engage in riskier investments as a result of President Trumps’ expected policies. However, "the bad news [for UBS] is that those are [just] plans," Sergio Ermotti remarked last Friday, suggesting that it may be some time before the firm can reap the benefits of US investors, adding
before they translate those plans into action they want to see the outcome of the first 100 days of the new administration.
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