UBS Takes Surprise $774 Million Hit From Archegos Meltdown

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UBS Takes Surprise $774 Million Hit From Archegos Meltdown

Marion Halftermeyer
·3 min read

(Bloomberg) --

UBS Group AG posted an unexpected $774 million hit from the collapse of Archegos Capital Management, joining U.S. rival Morgan Stanley in surprising investors over the extent of the impact from the U.S. hedge fund’s implosion.

The hit helped drive a $554 million decrease in revenue at the Zurich-based bank’s global markets business, overshadowing what would otherwise have been higher revenue on increased equity derivatives and cash equities, according to a statement from the bank on Tuesday. Overall, the bank reported better-than-expected profit of $1.82 billion, even as Archegos reduced net income by $434 million.

Switzerland’s largest bank had stayed mum on the collapse of Bill Hwang’s family office for weeks as rival Credit Suisse Group AG unveiled some $5.5 billion in losses tied to Archegos. Nomura Holdings Inc. also warned of potentially steep losses, while Goldman Sachs Group Inc., JPMorgan Chase & Co. and Wells Fargo all managed to limit or avoid losses. Morgan Stanley was criticized by some investors and analysts for revealing a $911 million hit at the time of its earnings.

The turmoil at Credit Suisse had afforded UBS Chief Executive Officer Ralph Hamers a period of relative calm, even as the bank fights a $4.5 billion penalty in France and the new CEO himself saw his short tenure complicated by a Dutch probe into his role in a money-laundering case at his former employer ING Groep NV. The bank said that it exited its remaining Archegos exposure in April and would see “immaterial” related losses in the second quarter.

“We are all clearly disappointed and are taking this very seriously,” Hamers said. “A detailed review of our relevant risk management processes is underway and appropriate measures are being put in place to avoid such situations in the future.”

Mike Mayo Blasts Morgan Stanley for Secrecy Over Archegos Hit

The Archegos hit drove down equities revenue by 20%, though it would have gained 48% excluding the hit. Fixed income trading declined about 37%. The key global wealth management business did better-than-expected, with pre-tax profit of $1.41 billion, compared with estimates of $1.19 billion. Recurring net fee income increased 8%, mainly driven by higher average fee-generating assets. Transaction based income rose 6%, while net interest income declined 3%.

Hamers is taking a deep look at where he can cut costs and digitalize operations, including in the high-touch business of serving the world’s wealthiest people. He wants to use artificial intelligence to target how to sell more products to the world’s wealthy and rethink what markets the bank operates in, with a heavy focus on Asia.

The bank also named Mike Dargan as chief digital and information officer and Barbara Levi as group legal counsel, as Hamers starts to make changes within the executive board. Dargan joins the group executive board on May 1, the bank said in a separate statement. He has been head of group technology at the Zurich-based bank since joining in 2016.

(Adds management board change in eighth paragraph.)

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