UBS announces surprise $861 million Archegos hit

Like Morgan Stanley, UBS kept its investors in the dark for weeks about the size of the losses it incurred in the collapse of Bill Hwang's family office.

UBS Group disclosed an $861 million hit from the implosion of Archegos Capital Management and vowed to improve risk management, joining Morgan Stanley in blindsiding investors who’d been kept in the dark for weeks about the size of the losses.

The loss, mostly booked in the first quarter, overshadowed a better-than-expected profit, with strong performance in the key wealth management business. Chief Executive Ralph Hamers said while the bank will require more transparency from clients to prevent such losses in the future, he defended the business with hedge funds as “strategic” and said he had no plans to follow rival Credit Suisse Group in cutting back lending.

“Clearly, we are very disappointed at this situation,” Hamers said in an interview with Bloomberg TV. “We are reviewing the different prime brokerage relationships, as well as the GFO — the family office relationships.”

Switzerland’s largest bank had remained quiet on the collapse of Bill Hwang’s family office for weeks, even as Credit Suisse unveiled a $5.5 billion hit and Japan’s Nomura Holdings Inc. also warned of steep losses. While Goldman Sachs Group Inc., JPMorgan Chase & Co. and Wells Fargo all managed to limit or avoid damage, Morgan Stanley was criticized by some investors and analysts for revealing a $911 million loss only during its earnings this month.

UBS fell as much as 4% in Zurich trading, leading European bank stocks lower, as investors digested the Archegos impact, which the bank had considered not material enough to disclose earlier.

The “Archegos losses have taken the shine of these results,” JPMorgan analysts Kian Abouhossein and Amit Ranjan wrote in a note.

The turmoil at cross-town rival Credit Suisse had afforded Hamers a period of relative calm, even as the bank fights a $4.5 billion penalty in France and the new CEO himself saw his short tenure complicated by a Dutch probe into his role in a money-laundering case at his former employer ING Groep.

UBS booked a $774 million hit from Archegos in the first quarter, driving down revenue from equities trading by 20%. That figure would have been up 48% excluding Archegos. Fixed-income trading declined about 37%. Hamers said he expects an additional $87 million trading loss in the second quarter from exiting the bank’s remaining exposure in April.

Hamers, six months into the job, is taking a deep look at where he can cut costs and digitalize operations, including in the high-touch business of serving the world’s wealthiest people. He wants to use artificial intelligence to target how to sell more products to the world’s wealthy and rethink what markets the bank operates in, with a heavy focus on Asia.

The new initiatives are expected to provide $1 billion in gross savings per year by 2023. The bank will also take a restructuring charge of $300 million in the second quarter related to their implementation.

As part of his digital plans, Hamers replaced the position of chief operating officer with that of chief digital and information officer. UBS named Mike Dargan to that role and he joins the group executive board on May 1, according to a separate statement. Dargan has been head of group technology at the Zurich-based bank since joining in 2016.