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UBS: mixed messages

5th May 2005
By IB Staff Writer

Swiss bank UBS has posted a mixed set of Q1 results, with a strong showing in its private banking operation masking a worse-than-expected decline in profits at its investment bank. The bank, along with its rivals, is finding the investment banking environment increasingly tough and may yet have to rely further on its private banking results to brighten the picture.

The Zurich-based bank saw net income rise by 15% to reach $2.2 billion (GBP1.2 billion), however pretax profits at the investment banking division slumped by a worrying 19%. UBS [UBS] explained this underperformance by a fall in fixed income and foreign exchange trading. It was therefore left to the private banking side of the business to leave a gloss on the figures - earnings there rose 6% on the year-ago period.

The strong private banking performance is unsurprising given the focus and level of investment the company has made in this area. Last year UBS spent nearly GBP500 million acquiring private banks across Europe, a move which has added approximately GBP17 billion in assets to the company's operations. Private banking clients added nearly GBP7 billion more than they withdrew in the first quarter, the second-highest intake ever, according to UBS, behind last year's first quarter.

Most of UBS's principal acquisition targets have been across Europe where it has set itself ambitious targets to build up a critical mass of assets, believed to be in the region of GBP5 billion, in each of the UK, Germany, Italy, France and Spain. Although the acquisitions have helped it to achieve this in the UK, Germany and Italy, the company is struggling to achieve the same success in France and Spain. It is still unclear whether the bank will look to bulk up its French and Spanish operations with further acquisitions, or whether it will instead focus on its more successful European ventures or the potentially lucrative Asian private banking business.

UBS recently used its AGM to outline its intention of continuing with its aggressive approach to private banking. Given the current strong performance of these private banking operations, it is no surprise that the company is looking to expand them further. However, with UBS, as well as rivals such as Credit Suisse [CSR], maintaining a bleak short-term investment banking outlook, the bank appears set to have to rely on its private banking operations for just a little longer.

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