John Evans takes an in-depth look into the latest Q3 results.
Client concerns about economic dislocation sparked by the prospective withdrawal by the Federal Reserve of its quantitative easing programme as well as the House standoff in Washington over the budget overshadowed private banking earnings in the latest period.
UBS saw its pretax profits at its wealth management arm fall five percent to CHF 555 million in the third quarter.
Net new money of CHF 5 billion francs compared with 7.7 billion in the same period last year. Money inflows were the strongest in Switzerland and Asia and relatively weak in Europe and emerging markets,
UBS chief financial officer, Tom Naratil, said clients became more cautious about borrowing and making transactions due to the debate over whether the Federal Reserve would reduce the pace of its monthly securities buying during the quarter.
UBS also disclosed plans to form a Swiss banking subsidiary because Switzerland’s ‘too-big-to-fail’ regulations may lead systemically important banks to change their legal structure. Swiss regulators have imposed among the world’s strict banking capital and liquidity rules.
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"The modifications we are currently considering to our legal structure are part of our ongoing efforts to meet the new regulatory requirements for the banking industry," UBS said.
The bank declined to comment on Zurich reports that it eventually planned to establish a ‘White Bank’ with three legal subsidiaries in Zurich, London and New York to accommodate itself to a range of tough new capital and regulatory requirements.
The Credit Suisse private banking & wealth management division reported pre-tax profit of CHF1,01 billion, down 3 percent on the year-ago period and unchanged net revenues of CHF3,32 billion for the third quarter.
This primarily reflecting lower transaction- and performance-based revenues and slightly lower recurring commissions and fees, partially offset by higher other revenues.
Net new assets across private banking & wealth management were CHF 8.1 billion,with continued strong contribution from high margin asset management products, emerging markets and the ultra-high-net-worth individual client segment, partially offset by cross border outflows in Western Europe.
Wealth management clients’ gross margin was 105 basis points, down from 110 basis points in the previous year, driven by the continued adverse impact from the low interest rate environment.
A new special unit at the private bank will absorb restructuring costs as Credit Suisse stops serving foreign clients up to 50 smaller foreign markets as well as rationalising its German business. CFO, David Mathers, said assets have been spread too thinly over 83 markets. This new unit will also take the impact of the expected legal settlement with the US over aiding American tax evasion.
Zurich private bank Vontobel blamed that uncertainties surrounding the US budget, along with volatile emerging markets, for discouraging client business.
"We experienced a slowdown in the inflow of new money, as we had anticipated," Vontobel chief executive, Zeno Staub, said.
None the less, Vontobel reported stable client assets in the third quarter, continued increases in profitability in private banking along with ‘sustained earning power in asset management….’ A total of CHF160.4 billion of client assets were entrusted to Vontobel on a group-wide basis at the end of the first nine months of 2013. It also saw continued growth of the business with external asset managers (EAMs) where the asset base exceeded CHF 6 billion.
Elsewhere HSBC Private Bank‘s global operations made a $16 million loss before tax in the quarter, after being held back by its European operations. That included a $279 million write off of goodwill on its Monaco private banking unit, after it failed to sell the business, and the cost of regulatory investigations.
HSBC Private Bank made a profit of $252 million in the same period last year, leaving profit to date for the first 9 months of 2013 at $92 million down from $779 million for the same period last year.
The bank said net interest income decreased as higher yielding positions matured and opportunities for reinvestment were limited by prevailing rates, lending and deposit spreads narrowed and average deposit balances fell. Revenue was also adversely affected by negative net new money.
Barclays Wealth and Investment Management, a bank now in a major layoff programme which will see 100 private banking jobs eliminated, saw its profits fall 68 per cent in first nine months compared to the same period last year. Third quarter earnings at its W&IM division fell to £54 million, attributable to £77 million spent on its ‘Transform’ strategic review programme and £22 million spent compensating clients. Operating expenses increased nine per cent to £1.25 billion.
However, the bank did report income increasing three percent to £1,380 million, which it said was led by the Americas and Asia regions.
Credit impairment charges increased £63 million to £88 million, largely reflecting the impact of deterioration of exposures on historical cases primarily in Europe. Q2 included a charge of £15 million relating to secured lending on Spanish property.
Barclays said this result was primarily due to the non-recurrence of the customer remediation provision, but this was partially balanced by an increase in Transform costs from £11 million to £44 million.
Client assets were broadly in line at £202.0 billion (2013: £202.8 billion) Transform was launched by Barclays Group chief executive, Antony Jenkins, in February.
Meanwhile Coutts, the wealth arm of RBS, suffered a 14 percent fall in operating profits, before impairment charges, to £61 million in the third quarter, compared with a year ago. Its cost-income ratio rose one percentage point to 77 percent.
The fall in profits follows a 7 percent drop in net interest receipts and commissions to £271 million, reflecting declining client activity also experienced by other private banks.