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UBS strikes pessimistic tone as Q1 i-bank revenues expected to plunge

UBS Group AG CEO Sergio Ermotti painted a bleak outlook to the start of 2019 as he warned of lower investment banking and wealth management revenues amid "one of the worst first-quarter environments in recent history."

Speaking at a March 20 conference, Ermotti said the Swiss lender expects revenues from its investment banking division to drop by about a third compared with a "very solid" first quarter a year ago.

UBS now expects to generate adjusted returns on attributed equity at around mid-single digits for the first quarter, the CEO said, while noting that the investment bank now has nearly 30% more capital than a few months ago.

The lender also expects global wealth management revenues to fall by roughly 9% amid a somber view among Asian clients due to political tensions, trade tariff disputes and concerns about slowing growth in the region, while its U.S. clients are also taking a more careful approach.

As a result, UBS is targeting at least $300 million in cost savings for 2019. The bank has already put the brakes on hiring as well as its work on a number of IT projects, but Ermotti stressed that it will not halt investments into "growth-oriented initiatives" to boost its short-term results.

"We are taking actions which will partly offset the impact of the difficult market environment so far this year, supporting capital generation," Ermotti said. "At this point, I still believe that we can achieve returns at least in line with last year's."

The bank's shares closed down 2.41% March 20 following the warning, which comes as UBS faces a string of regulatory challenges. The Swiss banking group was recently fined a record total of €4.5 billion in a tax fraud case in France, and is also contesting a lawsuit filed by the U.S. Department of Justice alleging it defrauded investors into purchasing precrisis residential mortgage-backed securities.