UBS: told you so

Is that a touch of swagger over at UBS? A knowing look of "I told you so"? As rivals fret about strategy - Deutsche Bank has just launched a new one as Credit Suisse welcomes a new chief executive - UBS looks most content with the plan it set out in 2012, based on a slimmed-down investment bank complementing a core wealth management business.

Tuesday's first quarter numbers justified that contentment and pushed the shares up 7 per cent to pass SFr20 for the first time since 2008. Profits at the investment bank rose 82 per cent, although all the big investment banks had a good first quarter. More importantly, wealth management profits jumped 40 per cent as market volatility (in the Swiss franc exchange rate, for example) persuaded clients to trade more. Group return on equity jumped from 9 to 15 per cent. True, UBS will struggle to replicate this performance in the rest of the year (first quarters tends to be strong), but there is plenty of reason for satisfaction at UBS's head office.

Still, take the good news with a pinch of salt. Remember that UBS's fourth quarter was far less impressive. Using a single quarter to justify or condemn a strategy is a bad idea - nowhere more so than in banking. More important for UBS shareholders is the question of whether these results can be a catalyst for a bigger move in the share price. At 1.5 times book value, they already trade at a hefty premium to the other big European banks. They have not traded above 1.5 times since 2010. Meanwhile pure play wealth managers such as Julius Baer trade at over 2 times.

Activist investor Knight Vinke thinks the way to close the gap is to jettison the investment bank. It is an interesting idea, but carries huge execution risk. And the activist will struggle to make headway when the existing strategy is delivering results.

Instead, UBS should focus on two areas. First, restraining the investment bank and ensuring that it never creeps above the promised maximum of SFr70bn in risk-weighted assets (it is at SFr64bn now). That will be tough in an investment banking boom, but UBS' credibility depends on it. Second, it needs to grow wealth management in the face of rising competition. With its low capital requirements, wealth management is a popular market with banks looking for a new strategy. This is hardly the time for swagger.

Email the Lex team at [email protected]

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation