Why Did UBS’s Investment Banking Profits Drop 50% In 2019?

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UBS’s (NYSE: UBS) investment banking (IB) profits declined by almost 50% from $1.5 billion in 2018 to $784 million in 2019. While UBS’s largest division, wealth management, continued to drive growth for the Swiss banking giant, its investment banking division dragged down the bottom line. This was primarily because the investment banking division reported an operating loss of $22 million in Q4 2019 despite generating better-than-expected revenues.

Trefis breaks down the reasons for the decline in UBS’s investment banking profits during the year in detail as a part of the interactive dashboard – Why UBS’s Investment Banking Profits Shrunk 50% In 2019parts of which are highlighted below.


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A detailed analysis of factors impacting UBS’s Investment Banking (IB) performance during the year:

#1 Operating Income Took A Hit Of More Than $700 Million

  • IB division’s operating income dropped from $1.48 billion in 2018 to $784 million in 2019.
  • This decrease in profitability can be attributed to a $773 million reduction in total revenues, partially offset by a $69 million decrease in total expenses.

#2 IB Division’s Total Revenues Declined By 10%

  • IB division’s revenue dropped 9.6% – falling from $8 billion in 2018 to $7.3 billion in 2019. This decline can be attributed to a fall in revenues across all operating heads.
  • Notably, all of the operating channels witnessed year-over-year declines in 2019, with equity underwriting fees being the worst hit.
  • Equity underwriting fees fell 20% to $631 million, mainly reflecting lower revenues from public offerings across all regions, with the global equity capital market shrinking ~3% in 2019.
  • Moreover, equity trading revenues (which form a significant chunk of UBS’s investment banking revenues) also fell by more than 10% due to lower level of client activity due to weak consumer sentiment.
  • However, FICC trading revenues remained almost flat at $1.6 billion in 2019, mainly due to a solid performance in Q4 2019, which saw the FICC trading revenues witnessing a growth of more than 16% (y-o-y).
  • Additional details regarding other major revenue items that moved during the quarter are available in our interactive dashboard.


#3  IB Division’s Total Expenses Marginally Decreased In 2019

  • Total expenses decreased by $69 million (-1.1%) for 2019 primarily as a result of a 6.6% decline in the personnel expenses.
  • Total personnel expenses declined by $193 million, falling from $2.94 billion in 2018 to $2.75 billion in 2019.
  • However, this decline was partially offset by amortization and impairment expenses, which jumped to $115 million in 2019 from just $12 million in the previous year due to a $110-million goodwill impairment charge incurred in Q4 2019.
  • Additional details regarding other major expense items that affected profits for the quarter are available in our interactive dashboard.

We expect UBS’s adjusted EPS for full-year 2020 to be around $1.23. Using this figure with our estimated forward P/E ratio of 12.3x, this works out to a price estimate of $15 for UBS’s stock – roughly 15% ahead of the current market price.


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