UBS lost a lot of rates traders and then its macro team had a bad quarter
UBS reported its second quarter results today. They were not the best. UBS's year-on-year performance in M&A was miserable. But its year-on-year performance in fixed income trading was especially full of sorrow.
As we noted here, UBS's fixed income trading revenues fell 20% in the second quarter while everyone else's rose by a lot. UBS did far worse than Barclays, where fixed income trading revenues at least increased by a sliver in Q2.
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What went wrong? UBS didn't elaborate for this article, but speaking on today's analyst call, UBS CFO Todd Tuckner, suggested said the fixed income business had suffered from "a less favourable environment for our business mix than a year ago." Maybe UBS doesn't trade enough commodities (like Barclays)?
UBS has also bank been moving capital into the equities sales and trading business instead. There was "stronger client momentum in equities," Tuckner said.
In equities sales and trading, UBS's revenues rose by 53% year-on-year in Q2. This was good, but it was also middling compared to rivals.
Alongside Tuckner's statements about the poor quarter in fixed income trading, UBS's written releases today said the bank specifically suffered a fall in both rates and FX revenues. It didn't say why, but it's worth observing that both BNP Paribas' and Citi's rates traders also had an inexplicably bad quarter. However, at Deutsche Bank, JPMorgan and Morgan Stanley, rates trading revenues rose.
UBS's travails therefore look more UBS-specific than might be supposed. In the circumstances, it's worth observing that many people left the UBS rates trading team last year. Following the departure of Mark Tinworth, the previous head of fixed income trading, UBS's rates team isnow run by Shane O'Cuinn, formerly of Credit Suisse. O'Cuinn has been hiring his own people, including Kilian Frensch from Nomura, who is now running European swaps trading, Kunal Parekh, and some juniors.
O'Cuinn and Frensch have presumably been having a tough time, particularly if UBS has been reallocating capital away from their business. We suppose that Eric Li, the Singapore-based head of FX trading, didn't have the best three months, either.
It's not clear what happens next. Maybe UBS will hire some more macro traders. Maybe it will shunt even more capital into its equities business. Fortunately, though, the Swiss bank's fixed income traders had a strong first quarter so they're still up on last year. Unlike BNP Paribas.
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