PBOC Promises to Protect Consumers as China Evergrande Teeters

Once the epitome of an era of helter-skelter borrowing and building in China, Evergrande has now become the poster child of a crackdown on developers’ debts that has left investors large and small sweating their exposure.

In a letter to investors seen by Reuters, the Shenzhen Financial Regulatory Bureau said “relevant departments of the Shenzhen government have gathered public opinions about Evergrande Wealth and are launching a thorough investigation into related issues of the company.”

It is also urging China Evergrande and Evergrande Wealth to work to repay investors, the letter said, which was sent following investor demands for an inquiry.

The People’s Bank of China (PBOC) made no mention of Evergrande in a statement posted to its website, which contained just a line on housing along with promises to make its monetary policy flexible, targeted and appropriate.

But at a delicate moment for the world’s most indebted developer, which missed a bond interest payment last week and has another due this week, its pledge to “safeguard the legitimate rights of housing consumers” hinted at the sort of response markets had begun to hope for.

With liabilities of $305 billion, Evergrande has sparked concerns its problems could spread through China’s financial system and reverberate around the world – a worry that has eased as damage has so far been concentrated in the property sector.

The PBOC’s broad-ranging statement was issued after the third quarter meeting of its Monetary Policy Committee. Its housing line echoed comments from Evergrande’s leadership that point to containment efforts and prioritizing small investors in properties ahead of foreign holders of Evergrande debts.

“We expect that any impact to the banking system will be manageable and that the government will instead focus on the social fallout of unfinished housing units,” said Sheldon Chan, who manages T. Rowe Price’s Asia credit bond strategy.

Suppliers exposed to Evergrande payables and domestic bondholders would also take priority over dollar bond holders, he said.

Evergrande dollar bonds have been trading accordingly, and remained on Monday at distressed levels around 30 cents on the dollar.

Research firm Morningstar listed BlackRock, UBS, Ashmore Group and BlueBay Asset managers as bondholders with exposure to Evergrande in a Friday report which said funds at HSBC and TCW had closed positions.

Ashmore, BlackRock, BlueBay, HSBC, TCW and UBS declined to comment.

Evergrande’s stock rose 8%, though at HK$2.55 it isn’t far above last week’s decade-low of HK$2.06 and stock borrowing costs have surged as short sellers pile in.

Shares of Evergrande’s electric car unit fell heavily after it warned of an uncertain future.

Work on a soccer stadium Evergrande is building in Guangzhou is proceeding as normal, the company said on Monday.

The focus now turns to whether a coupon payment of $47.5 million due on Wednesday is made, and then to whether China can contain the economic damage if Evergrande collapses.

Its struggles so far to pay suppliers and sell assets have already begun to dent confidence among homebuyers and force sector-wide price cuts, signaling that consolidation – at the very least – looms for the real estate industry.

“Evergrande’s potential credit event, in our view, is part of a ‘survival of the fittest’ test in China’s property sector,” Deutsche Bank strategist Linan Liu said in a note to clients.

“Allowing orderly exits by weaker players in the property sector, while painful, is necessary to improve overall leverage conditions in the sector and bring about a soft landing.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Ryan Woo in Beijing, Anne Marie Roantree in Hong Kong and Tom Westbrook in Singapore Writing by Tom Westbrook Editing by Stephen Coates, Mark Potter and Nick Zieminski)

Evergrande Domestic Debt Deal Calms Immediate Contagion Concern

Evergrande, Asia’s biggest junk-bond issuer, is so entangled with China’s broader economy that its fate has kept global stock and bond markets on tenterhooks as late debt payments could trigger so-called cross-defaults.

Many financial institutions have exposure to Evergrande through direct loans and indirect holdings, while any defaults will also trigger sell-offs in the high-yield credit market.

In an effort to reassure investors, the People’s Bank of China’s injected 90 billion yuan to the banking system, signalling support for markets as they braced for what is expected to be one of China’s largest-ever debt restructurings.

Evergrande is scrambling to avoid defaulting on a number of bonds with payments due this week and its main unit, Hengda Real Estate Group, said on Wednesday it had “resolved” one coupon payment due on Thursday on its Shenzhen-traded 5.8% September 2025 bond, via “private negotiations”.

It did not specify how much interest would be paid or when, nor did Hengda mention Evergrande’s other pressing debts, leaving it unclear what this means for $83.5 million in dollar bond interest payments due on Thursday.

Evergrande did not immediately respond to questions about its deal or its intentions.

But engagement with bondholders, a common way to avoid default, on top of chairman Hui Ka Yuan’s vow this week that Evergrande would “walk out of its darkest moment,” cheered investors and soothed markets more broadly.

“These events seem to suggest that the company is taking control of the situation and is trying its best to work out a solution with creditors,” Singapore-based Dexter Tan, a senior fixed income analyst at Bondsupermart.com, said.

Evergrande, which epitomised the borrow-to-build business model and was once China’s top-selling developer, also has a $47.5 million dollar-bond interest payment due next week.

“We do not have a clearer picture as how Evergrande settled its onshore coupon,” Singapore-based Chuanyo Zhou, a credit analyst at Lucror Analytics, said.

“It doesn’t look like a cash payment. It may still miss the coupon on offshore bonds due tomorrow.”

Evergrande’s woes have seen its shares fall 85% this year. The concerns have reverberated throughout China’s property market.

Shares of R&F Properties and Sunac China have both slumped around 50% year-to-date, Shimao is down more than 40% and Country Garden and Greenland Holdings have shed 30% and 20%, respectively.

Evergrande’s Hong Kong shares did not trade due to a public holiday but rose 40% in Frankfurt to 0.38 euros ($0.45).

Its dollar bonds maturing next year and in 2024 remained below 30 cents on the dollar.

In the wider market, the U.S. dollar slipped while the S&P 500 rebounded from recent losses.

BREAKDOWN

Analysts have been downplaying the risk that a collapse threatens a “Lehman moment”, or liquidity crunch, which freezes the financial system and spreads globally.

Only some $20 billion of $305 billion outstanding debts is owed offshore, according to Refinitiv data.

But the risk of failure remains high, particularly if offshore bondholders are less willing than those in China to cut deals, and the fallout has already begun to trigger tremors in the property market of the world’s second-largest economy.

“There are now comparisons being made between Evergrande with the collapse (of) Lehman Brothers and the crash in the U.S. housing market, with many analysts dismissing this comparison,” wrote Sebastien Galy of Nordea Asset Management in a recent note. “The reality is that it will take weeks to figure out the impact on growth given the impact on the real estate market.”

There is also mounting political pressure to act as the anger of retail investors with their savings sunk in Evergrande properties or wealth management products swells.

Asked at a regular daily briefing on Wednesday whether China would take measures to intervene, foreign ministry spokesman Zhao Lijian only referred to the “responsible departments”.

Some funds have been increasing their positions in recent months. BlackRock and investment banks HSBC and UBS have been among the largest buyers of Evergrande’s debt, Morningstar data and a blog post showed.

Other bondholders include UBS Asset Management and Amundi, Europe’s largest asset manager.

Still, many market participants believe the fallout from Evergrande is likely to be contained.

“Despite the worry, so far this looks like a corporate bankruptcy and not something worse,” said Brad McMillan, chief investment officer for Commonwealth Financial Network in a recent note. “It’s a big one, to be sure, but one that can be handled within the system.”

(Reporting by Anshuman Daga in Singapore, Andrew Galbraith and Samuel Shen in Shanghai. Additional reporting by Hideyuki Sano in Tokyo, Clare Jim in Hong Kong and Gabriel Crossley in Beijing and Ira Iosebashvili in New York. Writing by Anne Marie Roantree and Tom Westbrook. Editing by Richard Pullin, Jacqueline Wong and Alexander Smith)

China Evergrande’s Rising Default Risks Shift Focus to Possible Beijing Rescue

Analysts played down the threat of Evergrande’s troubles becoming the country’s “Lehman moment,” though concerns about the spillover risks of a messy collapse of what was once China’s top-selling property developer have roiled markets.

In an effort to revive battered confidence in the firm, Evergrande Chairman Hui Ka Yuan said in a letter to staff the company is confident it will “walk out of its darkest moment” and deliver property projects as pledged.

In the letter, coinciding with China’s mid-autumn festival, the chairman of the debt-laden property developer, also said Evergrande will fulfil responsibilities to property buyers, investors, partners and financial institutions.

“I firmly believe that with your concerted effort and hard work, Evergrande will walk out of its darkest moment, resume full-scale constructions as soon as possible,” said Hui, without elaborating how the company could achieve these objectives.

Investors in Evergrande, however, remained on edge.

Its shares fell as much as 7%, having tumbled 10% in the previous day, on fears its $305 billion in debt could trigger widespread losses in China’s financial system in the event of a collapse. The stock ended down 0.4%.

Other property stocks such as Sunac, China’s No. 4 developer, and state-backed Greentown China on Tuesday recouped some of their hefty losses in the previous session. The Hong Kong property sector index rose nearly 3%.

“We are uncertain of how far and how strong the ripple effect would be on the housing market and the developer industry,” analysts at Deutsche Bank said in a recent note. “We think investors should remain on the sideline until there is more clarity.”

Fund giant BlackRock and investment banks HSBC and UBS have been among the largest buyers of Evergrande’s debt, Morningstar data showed.

BlackRock added 31.3 million notes of Evergrande’s debt between January and August 2021, while HSBC increased its position by 40% through July, according to Morningstar. UBS increased its position by 25% through May, the latest date available in the fund tracker’s database showed.

The Chinese government has been largely quiet on the crisis at Evergrande in recent weeks.

“There must be negotiations behind the scenes about a systemic recapitalization (of Evergrande) by state proxies,” said Andrew Collier, managing director of Hong Kong-based Orient Capital Research.

“If one piece of Evergrande’s debt is allowed to default, it would trigger questions about all of their remaining debt from investors and the government doesn’t want a wider crisis like that,” he said.

World stocks stabilised somewhat on Tuesday and oil prices recovered from the previous day’s heavy selling, as investors grew more confident that contagion from the distress of Evergrande would be limited.

Hedge fund managers contacted by Reuters said they were not yet concerned about any contagion risk into other equities markets.

“From our perspective, we … do not see any potential fundamental long-term effects on our portfolio companies,” said one London-based hedge fund professional. However, “there could likely be a lot of volatility around this one in the short term.”

A default by Evergrande has been widely anticipated by some corners of the market.

“I would characterize Evergrande as a telegraphed and controlled detonation,” said Samy Muaddi, the portfolio manager of the $5.1 billion T. Rowe Price Emerging Markets Bond fund, who does not have a position in the company. “If an investor was still investing in Evergrande they were investing against Chinese policy makers, which is a good way to lose.”

However, the spillover concerns at least in the property sector remained. S&P Global Ratings downgraded Sinic Holdings to ‘CCC+’ on Tuesday, citing the Chinese developer’s failure “to communicate a clear repayment plan”.

Hong Kong-listed shares of small-sized Chinese developer Sinic plunged 87% on Monday, wiping $1.5 billion off its market value before trading was suspended.

A major test for Evergrande comes this week, with the firm due to pay $83.5 million in interest relating to its March 2022 bond on Thursday. It has another $47.5 million payment due on Sept. 29 for March 2024 notes.

Both bonds would default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates.

“I think (Evergrande’s) equity will be wiped out, the debt looks like it is in trouble and the Chinese government is going to break up this company,” said Andrew Left, founder of Citron Research and one of the world’s best known short-sellers.

“But I don’t think that this is going to be the straw that breaks the global economy’s back,” said Left, who in June 2012 published a report that said Evergrande was insolvent and had defrauded investors.

Evergrande missed interest payments due Monday to at least two of its largest bank creditors, Bloomberg reported on Tuesday, citing people familiar with the matter.

SPILLOVER RISKS

The Chinese government will help Evergrande at least get some capital, but it may have to sell some stakes to a third party, such as a state-owned enterprise, Dutch bank ING said in a research note.

“The spin-off of non-core businesses, for example, those that are not residential real estate type businesses, will probably be done first,” wrote Iris Pang, ING’s Chief Economist, Greater China.

“After that could come sales of stakes that are at the core of Evergrande’s business,” Pang said.

Citi analysts in a research note said that regulators may “buy time to digest” Evergrande’s non-performing loan problem by guiding banks not to withdraw credit and extend the interest payment deadline.

Still, Citi said that while Evergrande’s default crunch was a potential systemic risk to China’s financial system, it was not shaping up as “China’s Lehman moment.”

At the same time, the U.S. market is in a better position to absorb a potential global shock from a major company default compared with the years prior to the 2007-2009 financial crisis, Securities and Exchange Commission (SEC) chair Gary Gensler said on Tuesday.

In any default scenario, Evergrande, teetering between a messy meltdown, a managed collapse or the less likely prospect of a bailout by Beijing, will need to restructure the bonds, but analysts expect a low recovery ratio for investors.

S&P Global Ratings said in a report on Monday it does not expect Beijing to provide any direct support to Evergrande.

“We believe Beijing would only be compelled to step in if there is a far-reaching contagion causing multiple major developers to fail and posing systemic risks to the economy,” the rating agency said.

“Evergrande failing alone would unlikely result in such a scenario,” S&P said.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Svea Herbst-Bayliss, Clare Jim, Tom Westbrook, Alun John, Anshuman Daga, and David Randall; Writing by Megan Davies and Sumeet Chatterjee; Editing by Stephen Coates, Shri Navaratnam and Nick Zieminski)

Goldman Sachs to Raise Pay for Junior Investment Bankers – Business Insider

The bank’s second-year analysts will now make $125,000 in base compensation, while first-year associates will earn $150,000, Business Insider reported https://www.businessinsider.com/goldman-sachs-raises-salaries-investment-bankers-junior-analysts-associates-salary-2021-8?IR=T, citing two people familiar with the situation.

No formal announcement about the pay raise has been made and it was unclear which other levels of employees at the investment banking division have also been given salary increases, the report from the financial and business news website said.

Goldman Sachs declined to comment.

Investment banks have raised pay for first- and second-year associates this summer in an attempt to ease the strain on these workers and compensate them more for their work supporting more senior staff in a year of unprecedented deal making.

Citi Group, Morgan Stanley, UBS Group AG and Deutsche Bank AG have already increased pay for their first-year analysts to around $100,000, a raise of about $15,000.

In February, a group of junior bankers in Goldman’s investment bank told senior management they were working nearly 100 hours a week and sleeping 5 hours a night to keep up with an over-the-top workload and “unrealistic deadlines.” Half of the group, which consisted of 13 first-year employees, said they were likely to quit by summer unless conditions improved.

Goldman’s Chief Executive Officer David Solomon has said the bank was working to hire more associates to help with the workload, and vowed to enforce the “Saturday rule,” which prohibits employees from working between 9 p.m. Friday night and 9 a.m. on Sunday, except in certain circumstances.

(Reporting by Elizabeth Dilts Marshall, and Derek Francis in Bengaluru; Editing by Jacqueline Wong)

UBS’s Successful Q2 Results In A 63% Increase In Net Profit

The shares of UBS are rallying today after the investment bank reported a 63% surge in net profit in the second quarter of the year, thanks to the strong performance from its wealth management division.

UBS’s Shares Lead The Market

The shares of UBS rose by over 4% earlier today after the investment bank presented its earnings report for Q2 2021. UBS is the first major European bank to present its earnings, and it didn’t disappoint.

The Swiss banking giant reported a net profit of $2 billion for the second quarter of 2021. This figure is higher than the analysts’ estimate of $1.35 billion and represents a 63% increase from the same quarter of 2020.

UBS stock chart. Source: FXEMPIRE

The return on tangible equity was 15.4% versus 9.7% a year ago, while the operating income rose to $8.98 billion from $7.4 billion a year ago. Following the presentation of its Q2 earnings, the shares of UBS began to rally, rising by over 4% today. The rally today brings its total rise year-to-date to 19%, making it one of the best performing banking stocks in Europe.

UBS Records Massive Growth In Its Wealth Management Division

UBS’s Q2 growth can be attributed to the excellent performance it recorded in its wealth management division. According to the company, the wealth management division raked in quarterly profit before tax of $1.3 billion, representing a 47% increase from the same quarter a year earlier.

The recurring net fee income from the wealth management division also rose by 30% during the second quarter of 2021. The recurring net fee income and the buoyant market condition were responsible for lifting invested assets in the global family office business by 4%, bring it to $3.2 trillion.

The income generated is due to the massive $7 billion the bank lent ultra-high net worth clients, especially in the United States, where the clients accounted for $5.3 billion of the total. UBS CEO Ralph Hamers is optimistic about the market. He describes the second quarter as one with momentum and is optimistic about the short-term recovery of the economy.

UBS Books 63% Profit Surge for Q2 Amid Wealth Management Boom

By Brenna Hughes Neghaiwi

The Swiss bank‘s net profit of $2.01 billion far outpaced expectations for $1.34 billion in a poll of 20 analysts compiled by the group, as fee income jumped and asset prices rose at its private bank and asset management business. “Momentum is on our side and our strategic choices and initiatives are paying off,” said Chief Executive Ralph Hamers in a statement, adding all business divisions and regions had contributed to the rise.

UBS shares were indicated up 3.15% in pre-market trading activity, while the benchmark Swiss market index was indicated up 0.4%. Analysts pointing to stronger-than-expected revenue across the board and “well-contained costs”, as indicated by Jefferies in a note.

Hamers, in the top role since November, has set his sights on digitalisation to help win more business from the lower echelons of the world’s well-off. UBS sees potential for a new online platform to pull in $30 billion in the next year after being launched in May 2020, Reuters reported in June.

That platform continued to see inflows through the second quarter, as a further $0.5 billion since early June brought its invested assets up to $4.2 billion.

On Tuesday, UBS posted $25 billion in fresh fee-generating client inflows throughout wealth management, thanks in particular to strong growth in the United States, where it is seeing rising business with the ultra-rich. Combined with strong markets, that helped push invested assets in its global wealth management business up by 4% sequentially to $3.2 trillion.

Trading amongst its wealthy and ultra-wealthy clients also remained strong, helping Switzerland’s biggest bank boost pre-tax profits by 47% in its flagship business, as higher lending also helped offset a drag from lower interest rates on its net interest income.

MARKET VOLUMES DOWN

The first of the major European banks to report earnings, UBS has followed U.S. peers in smashing profit estimates. An economic recovery and a jump in dealmaking helped JPMorgan, Goldman Sachs, Citigroup and Bank of America all hoist second-quarter profits.

But trading revenue took a hit, as lenders failed to match prior-year comparables, when unprecedented volatility during the early months of the coronavirus pandemic helped drive record volumes.

UBS, similarly, saw revenue drop 14% in its global markets trading business, though the fall was less pronounced than at some U.S. lenders. It flagged that lower trading volumes could continue into the current quarter.

“We expect our revenues in the third quarter of 2021 to be influenced by seasonal factors, such as lower client activity levels compared with the second quarter of 2021,” its outlook statement said.

A surge in revenue from advising on deals helped offset the dip in markets earnings, pushing pretax profit at its investment bank up by 9% overall. Revenue from advising on mergers and acquisitions more than tripled in the second quarter, while in capital markets it was up 35%.

UBS in April reported an unexpected $774 million loss from the collapse of U.S. investment fund Archegos, taking the total hit to global banks beyond $10 billion.

The Archegos default has had a much larger impact on Credit Suisse. UBS’ cross-town rival has been under pressure to come up with an overhaul plan since suffering a more than $5 billion Archegos hit, hard on the heels of the $10 billion implosion in funds linked to supply chain finance firm Greensill Capital.

Credit Suisse reports earnings on July 29, following Deutsche Bank on July 28.

On Tuesday, UBS confirmed a further $87 million trading loss from the Archegos affair for the second quarter, as previously flagged.

In Switzerland, UBS’ domestic corporate and retail banking business saw pre-tax earnings double, helped by a pickup in economic activity as its home country eased COVID-related restrictions this year.

(This story was refiled to correct the net profit figure in second paragraph to $2.01 billion (not $2.91 billion))

(Reporting by Brenna Hughes Neghaiwi; Editing by Kenneth Maxwell)

Oil Prices Sink Again, as Investors Look Out for More Supply

Brent crude settled at $73.47 a barrel, dropping $1.29, or 1.7%. U.S. West Texas Intermediate (WTI) crude settled at $71.65 a barrel, down $1.48, or 2.2%.

The slide continued Wednesday’s losses, after Reuters reported that Saudi Arabia and the United Arab Emirates had reached an accord that should pave the way for a deal to supply more crude to a tight oil market.

A deal has yet to be solidified, and the UAE energy ministry said deliberations are continuing.

“That’s still the big elephant in the room – we had a deal, we didn’t have a deal – and that’s raising concerns,” said Phil Flynn of Price Futures Group.

Talks among the Organization of the Petroleum Exporting Countries, Russia and their allies, a group known as OPEC+, broke down this month after the UAE objected to extending the group’s supply pact beyond April 2022, saying the deal did not account for the UAE’s increased output capacity.

In the United States, a large drawdown in crude stockpiles did little to boost prices as investors focused on rising fuel inventories in a week that included the Fourth of July holiday, when driving usually surges.

“All that sense of gasoline optimism evaporated in just one week,” said Bob Yawger, director of energy futures at Mizuho. “If you don’t need the gasoline, you don’t need the crude oil to make the gasoline, and that’s the only math that matters at the end of the day.”

Several banks, including Goldman Sachs, Citi and UBS expect supplies to remain tight in the coming months even if OPEC+ finalizes an agreement to raise output.

OPEC, in its monthly report, said it still foresees a strong recovery in world oil demand for the rest of 2021, and predicted oil use in 2022 would reach levels similar to before the COVID-19 pandemic.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Bozorgmehr Sharafedin in London, Florence Tan in Singapore; Editing by Marguerita Choy, Will Dunham and Edmund Blair)

Banks Tighten Grip on FX Market as Algo Trading Rises – Survey

With a combined 30% share of the market in 2020, JP Morgan, UBS and Deutsche Bank took the top 3 positions in the widely watched Euromoney FX survey, as investors made a beeline for vendors offering more electronic trading and algorithmic tools in a year when the COVID-19 pandemic disrupted traditional trading arrangements.

A surge in market volatility due to the pandemic last March coincided with a disruption to trading, traditionally rooted in large trading floors at banks and hedge funds in Hong Kong, London and New York, as offices closed and workers were sent home.

That led to a rise in electronic and algorithmic trading and banks who had heavily invested in the space reaped rich rewards.

“Our investment in technology via our electronic and automated trading business was crucial,” said Chi Nzelu, head of macro eCommerce at JP Morgan, which also held the top spot for 2019. “Algo trading also came to the fore last year, helping to manage cost and access liquidity efficiently.”

The resurgence of the top banks comes at the cost of new entrants like XTX Markets, a dark pool operator, which had climbed steadily up the rankings to stand in third place in 2019, offering deeper trading liquidity and faster execution facilities.

The London-based market maker slipped to fourth place and also ceded market share.

The pandemic-induced volatility early last year widened bid-offer spreads to levels not seen since the global financial crisis, while reducing market depth even in currency pairs considered to be liquid.

While more widespread in equity markets, transacting via computers and high-powered algorithms has become increasingly popular in currency and bond markets in recent years with the pandemic accelerating the trend.

Banks have made heavy investments in algorithmic trading with top institutions offering a variety of solutions for trading currencies. For example, “adaptive algos”, offered by many banks in recent months, can change their trading styles automatically depending on fluctuating market conditions.

A study by Coalition Greenwich last month found the disruptions caused by the pandemic may have long-term effects on the behaviour of FX market participants.

More than 40% of financial FX traders employed algo trading in 2020 with nearly the same share expecting their usage of FX algos to increase in the next year, the study said.

For a look at all of today’s economic events, check out our economic calendar.

(This story corrects name of XTX Markets in 6th paragraph)

(Reporting by Saikat Chatterjee; Editing by Kirsten Donovan)

 

Is The Recent Regulatory Crackdown Bad For Crypto? UBS Thinks So

Traditional banks have warned cryptocurrency investors for years regarding the risks involved in crypto trading and investment. This time around, Swiss banking giant UBS believes that the recent regulatory crackdown could lead to the crypto bubble bursting.

Regulatory Crackdown Could Cause Crypto Bubble To Pop

Swiss banking giant UBS has warned its clients that the recent regulatory crackdown in the cryptocurrency market could pop bubble-like markets. Hence, advising its clients that Bitcoin is not suitable as a professional investment vehicle at the moment.

The bank made its thoughts known in a letter sent to its clients, pointing out that China’s latest crackdown has massively affected the prices of the cryptocurrencies. In recent weeks, the Chinese government has cracked down on crypto-related activities.

The Sichuan government became the latest province in China to ban cryptocurrency mining activities. The government cut off the power supply for 26 cryptocurrency mining farms and other smaller crypto miners. This led to a massive decline in Bitcoin’s hashrate over the past few weeks.

The move was followed by the People’s Bank of China directing banks and payment companies in the country to stop processing cryptocurrency payments. The move makes it almost impossible for Chinese traders to access cryptocurrencies easily.

In its note, UBS wrote, “Regulators have demonstrated they can and will crack down on crypto. So we suggest investors stay clear and build their portfolio around less risky assets.” The bank said it has warning investors regarding the regulatory crackdown and its pending effect on the cryptocurrency market.

UBS further cited the recent regulatory crackdowns in the UK and the US. In the UK, the FCA has toughened its stance on cryptocurrency exchanges, with Binance coming under fire and struggling to provide services to traders in the region.

Bitcoin’s Price Remains Below $35k

Bitcoin’s price remains in a bearish condition, down by nearly 50% from its all-time high. The leading cryptocurrency has been struggling in recent weeks and still remains below $40k.

BTC/USD chart. Source: FXEMPIRE

UBS said it doesn’t rule out the possibility of Bitcoin’s price rising again soon. However, it deems the investment as speculative and doesn’t advise professional investors to invest in Bitcoin. The recent regulatory crackdown could be needed to make the cryptocurrency market more professional and get rid of the bad elements in the space.

UBS CEO Sees Archegos Hit as One-off, Plays Down Job Cuts

“Archegos is not a systemic failure, but rather a unique event that can hardly find comparisons. In this case, there was a lack of transparency. We will no longer accept that. In any case, we have learned our lessons from it,” he said in the interview.

UBS, the world’s largest wealth manager, unveiled a $774 million revenue hit in the first quarter from the default of Archegos, which detracted from results that included record high client activity levels.

Hamers also played down reports that Switzerland’s biggest bank was cutting hundreds of jobs.

“In order to reduce costs, we need to cut jobs in certain areas. In others, however, we are creating new jobs. The bottom line is that the number of our employees will remain more or less the same,” he was quoted as saying.

(Reporting by Michael Shields)

UBS Hires Morgan Stanley Bankers to Lead U.s. Outsourced Trading Drive

The new recruitments are a part of a broader initiative within the bank to elevate its so-called execution hub, allowing hedge funds and asset managers to outsource their trading to the lender.

Jon Slavin, previously Global Head of Equity Trading at Morgan Stanley Investment Management, has been appointed UBS‘s Head of Execution Hub, Americas. Sherri Cohen, who previously headed global emerging markets at Morgan Stanley’s investment management arm and led infrastructure development for the unit’s trading systems, has been named to lead business development of the execution hub in the United States.

“In this role, Jon will be responsible for setting up and running our U.S. trading team and driving our regional client strategy,” Mark Goodman, global head of the bank’s execution hub, told staff in a memo.

(Reporting by Brenna Hughes Neghaiwi, Editing by Sherry Jacob-Phillips)

UBS Ramps Up ‘Netflix’ of Banking to Tap Into Stream of Millionaires

By Brenna Hughes Neghaiwi and Oliver Hirt

The world’s biggest wealth manager is trying to improve its digital services to reach customers outside its super rich core client base, with a new online platform called MyWay open to people with 250,000 Swiss francs ($278,000) upwards.

UBS’s emphasis on a digital approach to customers highlights a major shift in the world of private banking, where human connections and personal contact are usually the key to doing business with the very wealthy.

The project, started in May last year before Hamers’ became CEO, has the potential to pull in $30 billion within the next 12 months, a source familiar with the matter said. A UBS spokesman confirmed that target and current assets of $3.7 billion.

At UBS’s first-quarter results in April, Hamers unveiled an unexpected new strategic focus – that the bank would target private clients, or those with up to $5 million with the bank.

“(This) is a trend where we expect further growth and fast growth,” he told analysts at the time. “That’s where you can expect our resources to go.”

Hamers made a comparison with video and music streaming services Netflix and Spotify, where people get personalised recommendations they can click on. “If we can make our content available in that way, we can differentiate ourselves,” he told analysts.

Vontobel analyst Andreas Venditti said that for an institution that already banks more than half the world’s billionaires, the much larger pool of the globe’s 1% of millionaires presents a major opportunity.

“I wouldn’t say UBS can’t grow further in the billionaires space … but it’s very clear that their market share outside the billionaires space is definitely nowhere near 50%,” Venditti said. “The potential for growth there remains huge.”

Since being rolled out to new markets in Asia in October, MyWay has attracted interest ranging from smaller clients to some billionaires.

Bruno Marxer, who heads global investment management for UBS’ chief investment office, said in the past clients could be overwhelmed by the choices offered to them.

“But being able to drag and drop and play around with different elements that fit their personal needs and preferences is a much more intuitive and frankly enjoyable way to build an investment portfolio for many people,” he said.

The lion’s share of assets are from Swiss clients, but MyWay has attracted larger tickets out of Asia, where it has netted nearly $1 billion since launch, Roberto Rango, UBS’ head of advisory and sales for customer systems in Europe, said. Additional European markets are planned.

Customers currently access MyWay through advisers, but the bank also plans to make it available remotely.

“Soon clients will be able to access a microsite where they can explore the concept… and simulate a portfolio,” Rango said, adding that investment decisions would be made in discussion with an adviser.

MyWay is just one of at least five digital roll-outs the bank unveiled for wealth management and its advisers last year, while further initiatives are planned this year, including a digital lending tool.

In China, it is also looking to roll out a new digital bank to gain access to the country’s burgeoning affluent class, while Hamers has further set his sights on millionaires in the United States.

In the past few years, focus on the ultra-wealthy has helped UBS to boost efficiency, with the bank’s advisers managing increasingly large pools of money from these clients, even as the number of relationship managers has shrunk.

Now, industry experts say wealth managers must look to digital tools to help to capture the “regularly wealthy” at the other end of that spectrum by allowing just one adviser to oversee more of these clients.

“The big Swiss banks need to up their digital offerings, because younger clients want it and their costs are too high,” Ingo Rauser, a partner at global technology and management consultancy Capco, said. “Less complex processes can be digitised and automated. It’s how they differentiate from competitors.”

($1 = 0.8994 Swiss francs)

(Reporting by Brenna Hughes Neghaiwi and Oliver Hirt. Editing by Jane Merriman)

UBS Takes Unexpected $774 Million Archegos Hit, Overshadowing Q1 Profit Beat

By Brenna Hughes Neghaiwi

The charge taken by Switzerland’s biggest bank comes as losses from Archegos are still rippling across the global banking industry, with Japan’s Nomura posting on Tuesday its biggest quarterly loss in over a decade as a result of its dealings with the stricken fund.

“We are all clearly disappointed and are taking this very seriously,” UBS Chief Executive Ralph Hamers said of the loss in its prime brokerage business related to the U.S. client’s default. While the client was not named, it is widely understood to be Archegos.

“A detailed review of our relevant risk management processes is underway and appropriate measures are being put in place to avoid such situations in the future,” he said.

UBS shares were indicated down 1.15% in pre-market trading activity.

The bank, which has hitherto received little scrutiny over its involvement in Archegos and had previously declined to comment on any related positions, said on Tuesday the revenue hit to its prime brokerage business had reduced net profit by $434 million in the first quarter.

Still, net profit of $1.824 billion for the first three months of 2021 overshot median expectations for $1.591 billion in a poll of 20 analysts compiled by the bank.

UBS also posted a better than expected first-quarter pre-tax profit, as increases over the frenzied trading and bumper results achieved during the start of the coronavirus crisis last year helped offset the hit from Archegos.

Hamers, who took over from long-time boss Sergio Ermotti in November, was hired to help boost the bank’s digitalisation efforts after a successful stint doing so at ING.

But his start at UBS, widely lauded as an opportunity to prime the bank for a more tech-centred future, has been complicated by a Dutch criminal investigation into his role in money laundering failings at ING.

Hamers plans to unveil new strategic initiatives when he speaks to analysts at 0800GMT on Tuesday, centered around making UBS a faster and more client-driven “digital native” firm focused on sustainable investing.

A simplification of its setup and new digitalisation efforts should help generate approximately $1 billion in gross savings per year by 2023, the bank said, which is to be reinvested into growth initiatives.

The bank also carved out a new executive-level role of Chief Digital and Information Officer, promoting group head of technology Mike Dargan in a move Hamers said would help the bank achieve its strategic ambitions in the digital and technology space.

UBS has taken a back seat in financial headlines over recent months, after a slew of painful missteps at its nearest rival Credit Suisse prompted losses, sackings and probes at Switzerland’s No. 2 bank.

Credit Suisse has suffered a more than $5 billion hit from the Archegos debacle, which triggered losses amongst a swathe of global banks and a fire sale of stocks when it defaulted on margin calls in late March.

“In view of the strong Q1 results we felt it was not required (to disclose our losses related to Archegos) at the time (the default was first revealed),” Hamers said in an interview with Bloomberg TV.

The bank has no plans to ditch its prime brokerage business following the debacle, he added.

It had exited all remaining positions in April, the bank said in a statement, and would recognise related losses in the second quarter which are “immaterial for the group”.

Taking a cautious approach towards the second quarter, the bank said it expected client activity levels to come down from the highs seen in the first three months of the year, partially offset by a boost in recurring fees it generates off managing client investments due to higher asset prices.

RECORD CLIENT ACTIVITY

UBS derives the biggest chunk of its profits from advising and managing money for the world’s rich, while also maintaining smaller global investment banking and asset management operations.

It conducts retail and corporate banking only in its home market.

That business model paid off in 2020, as its low-risk lending book – comprised primarily of mortgages and loans to the wealthy, as well as a smaller portion of corporate and retail credits in its prosperous Swiss home market – suffered fewer losses than many high street peers.

Now, in the first three months of 2021, the bank once again overshot financial targets on the back of record activity across its client franchises and as a smaller and more risk-averse investment bank helped cushion the blow from Archegos but also reaped fewer rewards off stellar capital markets activity posted by peers.

U.S. banks posted forecast-beating results for the first quarter, with Goldman Sachs boosting profits six-fold and Morgan Stanley raising profits 150% despite disclosing a nearly $1 billion loss on Archegos.

UBS, however, saw investment banking pre-tax profit fall 42% on the back of the charge related to Archegos and more modest revenue growth in the rest of its trading business.

Wealth management saw profits rise 16% as lending growth and high transaction levels helped cushion the impact from falling and persistently low interest rates.

The bank saw $36.2 billion in fresh client inflows from wealthy customers, helping invested assets increase to $3.108 trillion.

Its asset management unit, meanwhile, posted the biggest gains across any of the bank’s divisions, increasing earnings 45% thanks to the strong investment environment.

(Reporting by Brenna Hughes Neghaiwi; additional reporting by John Revill; Editing by Michael Shields and Muralikumar Anantharaman)