FX to remain a ‘cornerstone’ of streamlined UBS

Swiss bank admits FX revenues declined during Q3 but vows FX will be a core business in its downsized investment bank

Foreign exchange will remain a core business for UBS, despite its taking the knife to other segments of the investment bank, including rates and credit, the bank said today.

UBS revealed today that it would concentrate its investment bank on key areas including equities, FX and precious metals, while exiting fixed-income business lines that have been “rendered uneconomical by changes in regulation and market developments”. As part of the reorganisation, UBS will shed roughly 10,000 jobs, cutting the bank’s workforce to 54,000 by 2015.

“In the future, our investment bank will be focused on advisory, research, equities, foreign exchange and precious metals,” the bank said in its report for the third quarter of 2012. “We will exit most products and services in our fixed-income business, retaining those that are necessary for serving our wealth management clients and clients of our corporate advisory franchise. We will retain limited credit and rates trading, along with structured financing capabilities, to support our solutions-focused businesses. Our leading foreign exchange business, including our emerging FX capabilities, will continue to be a cornerstone of the investment bank’s services.”

UBS reported a pre-tax loss of Sfr2.87 billion ($3.08 billion) in the third quarter, set against a loss of Sfr2.1 billion in the third quarter of 2011. In fixed income, currencies and commodities, the bank reported profits of Sfr1.11 billion in the third quarter, up from Sfr925 million in the same period last year.

“Our derivatives business improved its market share amid deteriorating market conditions and, despite reduced client activity, volumes and revenues from our FX electronic trading platform increased,” the bank said, adding that overall FX revenues decreased during the third quarter due to lower volume and reduced volatility.

Earlier this month, it emerged UBS is preparing to launch a set of FX algorithmic execution tools as it seeks to further enhance its e-FX capabilities and help its clients prepare for the demands of regulatory change.

Meanwhile, Deutsche Bank reported similar challenges to UBS in its third-quarter results, also published today. While the German bank’s pre-tax profits were €1.1 billion, up from €942 million in the third quarter of 2011, and revenue in its corporate banking and securities business rose by 65% to €4.3 billion, it conceded a soft quarter in FX.

“During the current year quarter, a number of businesses saw the benefit of improved market conditions and increased market activity, particularly compared with the weak third quarter 2011. Despite achieving record quarterly volumes, foreign exchange revenues were significantly lower than the prior year quarter, due to compressed margins,” said Deutsche Bank in its interim report for the third quarter.


This article first appeared in FX Week

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