Investing

UBS wealth arm suffers; Credit Suisse next?

The consistent outflows witnessed in emerging markets have dented the prospect for wealth management returns in the region, after UBS, the world's largest wealth manager, saw profits in its flagship wealth arm fall by around 40 percent in the last three months of 2015.

Shares in Switzerland's largest bank tumbled by around 8 percent after some 3.4 billion in Swiss francs ($3.3 billion) of net new flows bled from its main wealth-management business, owing to very "low levels of client activity".

Scott Mlyn | CNBC

With around $2 trillion of assets under management according to Scorpio Partnership last summer, UBS is the largest wealth manager in the world. Outflows were seen predominantly from European and emerging market (EM) clients, with analysts now reassessing what the Asian slowdown could mean for the sector.

"UBS is a well restructured bank but is not immune to an Asia slowdown in our view. Surprisingly, wealth management had outflows of -1.5 percent annualized (-3.4 billion Swiss francs) vs. expectations of 4.4 billion inflows," said European banks analyst at JP Morgan Cazenove, Kian Abouhossein.

"In our view this is very unusual, driven by EM outflows of -9 percent and Europe -2.4 percent annualized related to deleveraging by clients, cross-border outflows, as well as effects from balance sheet management," Abouhossein said. He added the group's earnings and dividend expectations per share now look unrealistic.

The group reported net profit up 79 percent at 6.2 billion Swiss francs Tuesday, ahead of a consensus forecast compiled by Reuters of 5.75 billion Swiss francs.

Speaking to CNBC, Ermotti played down concerns, adding that clients were still happy with their asset allocation, but warned the volatility seen in the markets was "paralyzing" both institutional and private investors.

UBS profit up 79% amid 'paralyzing' volatility

"I see clients being happy with their asset allocation at this stage, they believe the underlying fundamentals are still ok, so they don't trade in or out," Ermotti told CNBC shortly after the bank reported fourth quarter earnings earlier on Tuesday.

"We are in a long term business, we cannot manage our business on a quarter by quarter basis," he said.

Investors will be closely watching results from Swiss rival Credit Suisse, which reports full-year earnings on Thursday, with the wealth management division likely to come under similar scrutiny.

Data from the institute of international finance estimated that EMs saw net non-resident portfolio outflows of $3.6 billion in January, marking an "unprecedented" seventh consecutive month of outflows.

"Renewed concerns about China's growth outlook seem to have fueled a period of elevated global risk aversion that has weighed on portfolio flows to EMs," said chief economist at the group, Robin Koepke.

UBS's Wealth Management Americas unit, bucked the trend, reporting net new money of $16.8 billion in the quarter, as the bank upped their presence in the region.

This mirrored the IIF data, Koepke said, as all EM regions except Latin America were estimated to have faced outflows in January for the third consecutive month, with Latin America seeing $4.2 billion of inflows in January.