UBS takes a $744 million hit from Archegos in the first quarter, as the fund's implosion continues to hurt banks

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UBS took a sizeable hit from Archegos but still posted a 14% rise in profit in Q1.

UBS took a $744 million hit from the collapse of Archegos in the first quarter, as the US investment fund’s implosion continued to make itself felt on bank balance sheets.

Nevertheless, the Swiss banking giant beat analysts’ expectations with a net first-quarter profit of $1.82 billion, up 14% from a year earlier, as surging markets boosted fees from clients.

UBS’s first-quarter results, released on Tuesday, showed it had taken a $744 million hit on a US-based client of its prime brokerage business.

The hit from the Archegos fund, which spectacularly imploded in March after making risky bets, helped push down revenue in the bank’s global markets arm by 27% or $554 million.

Excluding the Archegos loss, UBS’ global markets revenue would have climbed 11% on the back of strong financial markets in the first quarter.

Archegos was a family office investment firm that managed the wealth of Bill Hwang, a former hedge fund executive.

It imploded in March when some of its highly levered bets on US media and Chinese tech companies started to go bad.

Its prime brokers – the banks which facilitate lending and sales to hedge funds and family offices – demanded it put up more collateral to cover potential losses. When Archegos failed to do so, the banks began to forcibly dump its holdings, leading tens of billions of dollars of selling.

Credit Suisse was the most badly burned by these fire sales. It eventually took a hit of $4.7 billion from Archegos in the first quarter after being slow to ditch its exposure. It pushed the bank to a $275 million loss in the first quarter.

Morgan Stanley took a $911 million loss from Archegos in its prime brokerage unit. But its profit nonetheless jumped 150% to $4 billion on the back of buoyant markets.

UBS chief executive Ralph Hamers said: “Our first quarter results also factored in a loss related to the default by a single US-based prime brokerage client. We are all clearly disappointed and are taking this very seriously.

“A detailed review of our relevant risk management processes is underway and appropriate measures are being put in place to avoid such situations in the future.”

UBS shares fell 2.73% in early trading to 13.74 Swiss francs ($15).