UK
UBS has reported its second quarter results and they are good. They are especially good for the bank’s historically excellent equities sales and trading business.
When exceptional items are taken out of the equation, revenues in UBS equities division actually rose 4% quarter on quarter according to Dirk Hoffman-Becking at Sanford Bernstein. The only other bank to come anywhere close was Credit Suisse, which achieved a 2% increase (post exceptionals).
Now, you will recall that Goldman’s equity business had a particularly dreadful second quarter for equities trading. Goldman said this was mostly because it failed to hedge against volatility, leading to big losses in equity derivatives trading.
Interestingly, UBS attributed its equities success precisely to pre-emptive hedging against volatility before the flash crash. In response to a question from a curious Goldman analyst, UBS CFO John Cryan said the bank’s equities business simply covered its short volatility position, noting that they didn’t think the benign conditions at the start of the year would last and that it was, “just good risk management.”
Given that UBS equities bankers are clearly better than Goldman Sachs’, therefore, they can surely expect to be generously remunerated?
Well, maybe not.
Net, UBS added only 179 staff in its investment bank over the past quarter. However, headhunters say it’s done a lot of hiring in FICC (fixed income currencies and commodities), on increasingly generous packages.
Despite this, FICC didn’t do nearly as well in the past quarter (falling 44% after exceptionals according to Sanford Bernstein), leading Grubel to admit that the aim of CHF2bn a quarter may not be attainable in the short term. Longer term, however, Grubel said CHF4bn a quarter is desirable, suggesting he has no intention of curtailing UBS’s FICC ambitions just yet.
There have already been rumours of disgruntlement in UBS’s equities business with regards to the amount being paid to new fixed income hires. Today’s results suggest any griping may be valid.
qoq is pointless. What about yoy? UBS’ equities business was bombed out last year with apparently about 50% of the trading floor leaving. So a 4% qoq increase probably just means that they are still recovering from that disaster. People I speak to suggest there are still enormous problems there. But the city is always rife with rumours!