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(Bloomberg) -- UBS Group AG was downgraded at Morgan Stanley after the Swiss lender’s lower-than-expected first-quarter earnings muted the outlook for dividends.

The bank was cut to equal-weight from overweight by Morgan Stanley analysts led by Huw van Steenis. UBS may pay a dividend of 65 centimes per share this year, they wrote, down from 85 centimes in 2015, which included a special payout of 25 centimes. Analysts at Credit Suisse Group AG also cut their dividend estimate for this year, forecasting a payout of 60 centimes a share. 

Investors have piled into UBS, enticed by a policy of returning at least half of the profit to shareholders, after Chief Executive Officer Sergio Ermotti unveiled his overhaul in 2012 to focus on wealth management. While the CEO told analysts on Tuesday that the bank still plans to maintain that payout ratio after profit slumped 64 percent in the first quarter, he declined to elaborate on the full-year dividend, citing tougher capital requirements.

“We think UBS has the potential for an appealing yield as it works through its issues,” van Steenis wrote in the note dated May 3. “However the environment and capital misses mean the odds for special” dividends “in the next three years are remote.”

‘Cost Control’

The shares fell 0.9 percent to 15.15 Swiss francs at 12:11 p.m. in Zurich after declining as much as 8.6 percent on Tuesday. They have lost 22 percent of their value this year.

UBS paid an ordinary dividend of 60 centimes and a special payout of 25 centimes in 2015, with the latter reflecting a tax gain. Ermotti has said he doesn’t expect an extra payout for 2016.

While the CEO said on Tuesday that he’s “confident” that UBS will reach its target of cutting costs by 2.1 billion francs ($2.2 billion) in 2017, the Morgan Stanley analysts wrote it was a surprise that the lender didn’t announce “more aggressive cost control” to respond to volatile markets.

The investment-banking business, led by Andrea Orcel, reported a 25 percent decline in trading revenue in the first quarter, a weaker performance than the average of global firms that have disclosed quarterly earnings.

The main upside risks “include a sharp and continued bounce in investment-banking revenues across the industry,” the Morgan Stanley analysts wrote. “The main downside risks we see are higher book value erosion from risky assets and material client money outflows, as well as greater ongoing marks from de-leveraging, an inability to improve the profitability of the investment bank, and higher litigation charges.”

--With assistance from Chris Malpass To contact the reporter on this story: Jeffrey Vögeli in Zurich at jvogeli@bloomberg.net. To contact the editors responsible for this story: Simone Meier at smeier@bloomberg.net, Keith Campbell

©2016 Bloomberg L.P.

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