UBS Posts Q1 2019 Results - 1.1bn USD Profit Despite Drop in IB Revenues

Huge drop in Investment Banking revenues but still more than a Billion Dollars in Quarterly Profit

UBS posted a 21% fall in wealth management and 64% drop in investment banking revenues for Q1 2019. "Profit" came in at 1.1bn USD (with PBT coming in at USD 1.5bn).

A Closer Look at UBS' Capital Ratios

13%  CET1 capital ratio. How do we interpret this 13% number? Basel III capital rules require all banks to maintain a minimum CET1 to RWA ratio of 4.5% by 2019. CET1 is a capital measure introduced in 2014 to protect the economy from financial crisis - the mandating of a minimum requirement ensures banks have a financial "cushion" to absorb unexpected losses. Thus UBS has almost three times the minimum requirement. CET1 stands for Common Equity Tier 1 which is a component of Tier 1 capital that consists mainly of common stock held by a bank or other financial institution.

A quick recap on the calculation -

CET1 Ratio = Common Equity Tier 1 Ratio = Common Equity Tier 1 Capital / Risk Weighted Assets

CET1 capital is at the bottom of a bank's capital structure implying in the event of a crisis, losses are first deducted from this tier. If the ratio falls below minimum level required by regulators, banks must build back that capital layer or risk being shut down or taken over. Dividend payments and employee bonuses may be restricted during this time.

Leverage -
3.8% CET1 leverage ratio
5.4% Tier 1 leverage ratio

Carillion Shares Drop 30%

Construction giant Carillion saw its shares drop 30% following a profit warning on Monday morning stating the company was losing money on its construction contracts. Balfour Beatty's stock also dropped but only by 50bps. Analysts decried Carillion's woes as largely company-specific. In particular, analysts pointed to a stretched balance sheet where debt used to fund acquisitions weighed heavily on thin margins in Carillion's day to day business.

Most Levered Commodity Assets

ATM commodity options give you generally 5-10 times leverage. You can get a pretty good 8x to 9x leverage from trading base metals options on LME aluminium and copper. Copper has higher leverage than aluminium although their volatilities are roughly the same. Crude options give you about 8x leverage.