If you thought UBS was special, prepare to be disappointed. Deutsche Bank’s banking analysts have just released a chart suggesting that UBS’s investment bank isn’t quite as fancy as we might have implied. This is it:
As the chart above shows, everything’s good in FICC and equities, but UBS is under-performing in advisory and corporate finance – Andrea Orcel’s area of particular interest.
UBS’s weakness in investment banking is particularly surprising in light of its M&A recruitment spree. The Swiss bank hired 24 senior bankers at the end of 2013, all of whom should now be fully operative. It’s also continued recruiting this year, with six new US M&A hires in March and a senior Citi hire in July.
As we noted yesterday, however, M&A isn’t UBS’s main problem. The Swiss bank’s 12% increase in second quarter revenues wasn’t exactly great compared to the 62% increase at Goldman Sachs, but nor was it a disaster. The disaster happened instead in UBS’s debt capital markets (DCM) business, where revenues fell 51% year-on-year in the second quarter (compared to declines of 17% at Goldman Sachs and 3% at Credit Suisse).
What’s wrong with DCM at UBS? The bank neglected to explain the decline in yesterday’s call or in the material accompanying its results. It’s worth remembering that doom was predicted for UBS’s DCM business when the bank cut its fixed income, currencies and commodities (FICC) trading business back in 2012. “Over time their smaller fixed income business will start to erode their primary business,” predicted analyst Dirk Becker three years ago. “If you’re an issuer and you’re looking at 15 large investment banks to work with, will you pick the one with a large fixed income business and full market making capabilities, or will you go for the one that’s simply cherry picking the business it wants to be involved in?”
Is this what’s befallen UBS’s DCM business now? Maybe, but it’s also worth noting that the CHF371m of DCM revenues generated by UBS in the second quarter of 2014 were significantly above its Q2 DCM revenues of CHF246m in 2013 and CHF197m in 2012. On this basis, CHF180m of DCM revenues in Q2 2015 don’t look great, but they’re not quite such a disaster either. DCM at UBS is still a good bet.