UBS is working hard to stop the decline in earnings, but cost cuts alone won't bring back growth. Nine aspects of UBS' performance – problems and rare glimmers of hope.

1. Cost Cuts Don't Bite

UBS is fighting an never-ending war to contain growing costs. The bank says that the implementation of new regulation and capital requirements are boosting its costs further. The management claims it reduced costs by 1.6 billion francs in 2016. But this doesn't really show in the figures published today.

The cost-income-ratio rose to 85.1 percent from 81.8 percent a year earlier. This is obviously mainly due to the drop in profit, but also goes to show that UBS has hardly made much progress in reducing its spending on salaries. They declined by only 261 million francs last year.

2. Main Street Beats Wall Street

finews.com has noted before that UBS’ Americas head Tom Naratil may be the better private banker than Juerg Zeltner, who actually runs the flagship unit for the wealthy. The latest quarter shows Naratil’s unit doesn't need to shy away from a comparison with Andrea Orcel either: the brokerage earned more than the Orcel-led investment bank last year. 

The brokerage’s spending has been far smoother, and Naratil has managed to hike broker productivity as well as lending. To be sure, brokers in the Americas also suffered net quarterly outflows, as new colleagues poached early in the year haven’t yet brought their assets on board. 

But the «Trump boost» noted by CEO Sergio Ermotti will be felt with U.S. wealthy clients first. Naratil, and Bob McCann before him, is showing that brokerage doesn't need to be bulge bracket in the U.S. to work; Orcel has yet to deliver the equivalent proof for his investment bank.

3. Keeping Shareholders Happy

Profit declined by half, shares are worth less than a year ago – 2016 wasn't a good year for the shareholders. But: The bank proposes to keep the dividend unchanged at 0.6 francs per share. Of course, a year ago, shareholders also got a special 0.25 francs extra per share. What's more: The dividend payment will be financed by using capital reserves, which makes them not liable for the withholding tax. In future, the bank wants to keep dividends tax-free.

4. Lack of Impulses and Ideas

UBS seems surprisingly passive, despite facing structural problems, which manifest themselves in a persistent decline in earnings. There is a lack of impulses and initiatives throughout the 2016 report. The company meekly says it will continue cutting its costs. And the only really new initiative is a philanthropic health portfolio. It is questionable whether this launch will bring the necessary impetus.

5. Trouble in Asia I

UBS caught the headlines with its Asia business last year. But not only in a positive way. Switzerland's biggest bank for instance was involved in the corruption scandal surrounding the Malaysian state fund 1MDB. A string of top bankers left the bank and joined Credit Suisse, the arch rival.

Rigorous cost cuts, with a reduction in personnel, had a negative effect on morale. The local banking industry also has grown into being proper competition. The business with the very rich clients, once the top business for UBS in Asia, seems to stagnate. The bank instead has put its focus on the affluent retail segment, hoping to kindle growth again.

6. Trouble in Asia II

The ructions in the private bank aside (see previous point), the region is bound to be of concern to UBS. The largest wealth management hunting ground in the world, Asia also shows the worst industry margin of all UBS’ regions – a paltry 65 basis points. UBS likely being humbled by losing share to increasingly savvy local competitors – as well as to Credit Suisse, which is aggressively lending balance sheet in Asia to win business.

Unhelpfully, UBS’ profits from investment banking also tanked, as revenue tumbled. Investors may have been spooked by the U.S. election and prospect of major policy changes such as a trade war with China. The weakness doesn't bode well for UBS: Asia is a major prong in the growth strategy for both its main units.

7. Business With Super Rich Flags

UBS more than ever sees itself as the bank for the seriously rich, the ultra-high net worth individuals or UHNWI. Customers in that segment own 50 million francs or more. But the division managed by Josef «Joe» Stadler is struggling. Fewer and fewer UHNWI are taking their assets to the Swiss bank. In the fourth quarter, the bank took in 2.6 billion francs from this clientele.

And UBS is earning less and less banking with the very rich. The gross margin dropped to 49 basis points in the fourth quarter, from 53 basis points a year earlier. This is also the lowest figure among all wealth-management units.

8. Asset Management's Groundhog Day

It never fails to surprise that a major bank like UBS cannot eke out critical mass in institutional money management. Instead, the business has languished, recording net outflows of money in three of the last four quarters. Without money-market funds, the unit lost 9.8 billion francs in the fourth quarter alone.

The lackluster performance raises the question if the unit's management is capable of advancing the business. It is impossible for Switzerland to win any credibility as an asset management center without its largest Swiss bank demonstrating an outstanding performance in this area.

9. Fintech Fruits?

UBS is abundantly present in Switzerland's fintech and digitization scene. Thanks to a London Blockchain lab and tie-ups with Santander and BNY Mellon, UBS has managed to associate itself at the forefront of emerging technologies. The quarterly statement is also true to this theme, playing up UBS' leading role in fintech developments.

The bank has launched «Ask UBS,» an interactive dialogue tool based on Amazon's «Alexa» app, as well as Smartwealth, an online money consultant. In short, fintech has created a massive amount of publicity for UBS. It remains to be seen whether UBS can translate this into financial success for itself.