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A branch of Swiss bank UBS stands in Zurich on June 22, 2020.

Arnd Wiegmann/Reuters

UBS reported an unexpected US$774-million loss on Tuesday from the collapse of U.S. investment fund Archegos Capital Management, taking the total hit to global banks from the stricken family office beyond US$10-billion.

The charge taken by Switzerland’s biggest bank comes as the fallout from Archegos continues to ripple across the banking industry, with Nomura posting on Tuesday its biggest quarterly loss in more than a decade as a result of its dealings with the stricken fund. The Japanese bank said it will book losses of around US$2.9-billion this year on Archegos.

Morgan Stanley lost nearly US$1-billion on the family office’s implosion while UBS’ cross-town rival Credit Suisse has been hit the hardest with a more than US$5-billion charge after Archegos defaulted on margin calls in late March, triggering a fire sale of stocks.

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UBS, the world’s biggest wealth manager, said it was now reviewing all of its client relationships both within its prime brokerage unit, which caters to hedge funds, and within its family office business, which manages very large pools of money for wealthy individuals and families. It is also reviewing its risk management systems.

“I understand you’re disappointed. We are disappointed as well,” UBS chief executive officer Ralph Hamers told analysts on a call fielding queries over the loss, the extent of which had surprised investors.

UBS shares fell 3 per cent in morning trade.

“[The Archegos loss] highlights the inherent risk in its capital markets activities and presents a setback against its [UBS’s] otherwise risk-averse culture,” Moody’s analyst Michael Rohr said in a note. “The bank’s strong capital and liquidity remain key credit strengths safeguarding its financial profile and ratings.”

UBS, which had previously declined to comment on any fallout from Archegos, said on Tuesday the revenue hit to its prime brokerage business had reduced net profit by US$434-million in the first quarter.

Still, net profit of US$1.82-billion for the first three months of 2021 beat the US$1.59-billion median forecast from 20 analysts polled by the bank amid a bumper quarter for debt and stock deals.

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

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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.

Mr. Hamers announced several strategic initiatives when he spoke to analysts on Tuesday, centred around making UBS a faster and more client-driven “digital native” firm focused on sustainable investing.

A simplification of its setup and new digitalization efforts should help generate approximately US$1-billion in gross savings a year by 2023, the bank said.

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.

Mr. Hamers on Tuesday said the bank did not feel the need to disclose the loss on Archegos earlier owing to the strong Q1 results, and had no plans to ditch its prime brokerage business following the debacle.

It had exited all remaining positions in April, leading to a further US$87-million trading loss in the second quarter, Mr. Hamers said.

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Taking a cautious approach toward 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, partly offset by a boost in recurring fees it generates off managing client investments owing 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.

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

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UBS, however, saw investment banking pretax profit fall 42 per cent 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 per cent as lending growth and high transaction levels helped cushion the impact from falling and persistently low interest rates.

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