UBS Financial Statement: No Losses from Black Thursday but FX Margins Contract in Q4

In its Q4 financial statement, UBS revealed that FX trading revenues remained flat with Q3 levels even as client trading

rp_ubs-logo-300x300.pngUBS posted its Q4 2014 and full year results today. During the quarter, Operating Income rose 6.9% to CHF6.746 billion from the same period in 2013. Diluted Earnings per Share rose to CHF0.26 from 0.24. In regards to its foreign exchange (FX) trading business, UBS made several references to it in their report, but didn’t break out any individual revenue or profit figures.

One of the interesting FX revelations was that their trading revenues were in-line with the previous quarter. This occurred even as overall FX volumes surged during Q4 on an increase in volatility. FX trading is part of UBS’s investment bank’s Foreign Exchange, Rates and Credit division. During Q4 the division experienced a decline to CHF297 million vs CHF315 million in Q3 and CHF324 million in the same period in 2013. UBS pinned the decline on “lower revenues in our rates and credit business.”

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In FX, UBS commented, “Higher client revenues resulting from increased activity levels were offset by weaker trading revenues.” The statement reveals that despite the volume increase, revenues were mitigated by a decline in trading margins from the unit. While not providing much in details, the declining margins could be the result of providing customers tighter spreads in the competitive market or some dealing related losses that impacted overall revenues.

During their Q4 statement, UBS also provided an update to its business from last month’s SNB decision to remove its 1.20 floor on the EUR/CHF exchange rate. As opposed to several other banks such as Deutsche Bank and Citibank, UBS stated that it didn’t experience losses in its trading business from the SNB announcement.

The statement reaffirmed its initial update to shareholders which was announced last month. However, UBS added a warning in their current financial statement that as a Swiss-based bank, the Swiss franc’s strengthening compared to other major currencies could impact their franc-denominated income in 2015. UBS stated, “The portion of our operating income denominated in non-Swiss franc currencies is greater than the portion of operating expenses denominated in non-Swiss franc currencies.” Therefore, non-franc related revenue that is exposed to franc-denominated expenses would experience a contraction in profit margins “in the absence of any mitigating actions.”

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