(Bloomberg) -- UBS Group AG reported a surge in equities revenue in the fourth quarter boosted by derivatives trading, while the Swiss investment bank missed out on a jump in fixed-income trading activity that boosted U.S. rivals.
Equities revenue jumped 22 percent to 891 million Swiss francs ($890 million) from a year earlier, the bank said Friday. That topped the consensus estimate of 775 million francs, according to a note from JPMorgan Chase & Co.’s Kian Abouhossein. Revenue from foreign exchange, rates and credit trading dropped 12 percent to 341 million francs, missing the consensus estimate of 434 million francs, Abouhossein said.
UBS, which has pulled back from many bond-trading businesses to focus on wealth management amid harsher capital rules, said drops in revenue from emerging markets and interest-rate options were behind its fixed-income decline. The five biggest U.S. investment banks reported a collective revenue increase of 43 percent in that business.
“We weren’t as well positioned as we obviously ideally would have liked to have been to benefit from the trends in volatility following the U.S. election -- we have very low inventory,” UBS Chief Financial Officer Kirt Gardner said on a call with analysts Friday.
European banks such as UBS, Credit Suisse Group AG and Barclays Plc have ceded share in trading businesses to the big Wall Street lenders, which were faster to take losses and restructure after the financial crisis.
To read more about trends in global securities trading, click here
“The steepening of curves and the narrowing of credit spreads benefited players that had strong presence in credit markets as well as rates, and in particular structured credit products,” Gardner said. “That benefited two asset classes that we don’t participate in in a very meaningful way. Our business is much more macro- and FX-focused.”
UBS’s jump in equities revenue outpaced all of the U.S. firms, which posted a collective 3 percent climb. The firm’s stock trading revenue for 2016 was about twice what it produced from fixed income, whereas the U.S. firms get about two-thirds of their trading revenue from the bond side.
While praising a “strong” equities result, Citigroup Inc. analyst Andrew Coombs highlighted fixed-income revenues were “far weaker than U.S. peers, which management attributed to a stronger fourth quarter 2015 comparison, and lower inventory levels.” As a result Coombs, who has a buy rating on the stock, gave the investment bank "mixed" grade.
Overall the securities unit, led by Andrea Orcel, reported pretax profit rose to 306 million francs from 80 million francs a year earlier, as it benefited from a one-time gain and lower restructuring costs.
To contact the reporter on this story: Stephen Morris in London at firstname.lastname@example.org. To contact the editors responsible for this story: Michael J. Moore at email@example.com, Cindy Roberts
©2017 Bloomberg L.P.