UBS M&A bankers' excellent quarter marred by Archegos

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UBS M&A bankers' excellent quarter marred by Archegos

It wasn't long ago that UBS was cutting M&A managing directors in its investment bank after their poor performance in 2019. Two years later, any whiff of underperformance in M&A has been thoroughly laid to rest.

In the second quarter of 2021, revenues in UBS's M&A division rose by 223%, far more than the 83% growth in M&A revenues achieved at Goldman Sachs or the 77% at Citi, to reach their highest level on record. For the first half as a whole, UBS' M&A revenues are up nearly 80%, secondly only to Goldman's 96% increase. 

For all M&A bankers' hard work, however, operating profits in the investment bank were largely flat in the second quarter and down 18% in the first half. 

UBS's M&A bankers have both their fixed income trading colleagues and losses related to the Archegos family office to thank for the insipid profitability of the investment bank as a whole. Fixed income trading revenues at UBS were down 46% in the first half due to what the bank described as a "decrease in revenues from foreign exchange, rates and credit products." So far, no other bank to report has revealed a larger drop in fixed income trading revenues. UBS also reported a further $87m loss from Archegos, an addition to the $774m loss it booked in the first quarter.

The Swiss bank no longer breaks out compensation spending or headcount for its investment bank, but with costs accounting for nearly 78% of revenues in the first half, UBS has a much higher cost base than most U.S. and European rivals, and therefore can't be too generous.

Away from fixed income trading, UBS's large equities sales and trading business generated a 23% increase in revenues in the second quarter to reach their highest level since 2015, but equities sales and trading revenues were flat year-on-year in the first half. Risk weighted assets allocated to the investment bank were cut by 5% year-on-year in the six-month period. 

Speaking on this morning's investor call, UBS CEO Ralph Hamers said the bank had been gaining share in M&A, prime brokerage and increasing private lending. Environmental, Social, and Corporate Governance (ESG)-related work is a priority, said Hamers: "We want to be the go-to institution to invest in energy transition." M&A at UBS has benefitted from a renewed focus on some sectors over others, said Hamers. 

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