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UBS Echoes Wall Street Peers by Warning of ‘Fragile’ Conditions

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UBS Group AG Chief Executive Officer Sergio Ermotti joined a growing chorus of Wall Street executives warning the market environment remains shaky, even after improving from a first quarter which he has called one of the worst in recent history

Discussions around Brexit, a “total reversal” in expectations for interest rates and the clash between the European Union and Italy over fiscal policy are “clearly not helping bring back confidence,” Ermotti said Thursday at a conference. He spoke hours before the European Central Bank signaled it will keep interest rates at record lows for longer and may even take further measures to stimulate the weakening European economy.

Banks have been warning of a second-quarter slump as a host of risks — from the burgeoning trade war to Brexit and escalating tension between the U.S. and Iran — weigh on investor sentiment. Citigroup Inc. said last month that

trading revenue has declined so far this quarter, while Bank of America Corp. indicated it’s on pace for a 10% drop and JPMorgan Chase & Co. also reported a downturn.

Ermotti said while business has improved from the start of the year, that’s “from a very low base.”

“The situation is better, but it’s far from being clear and solid,” Ermotti said at the conference, which was organized by Goldman Sachs Group Inc. Clients show “a willingness to step into the market, but it’s very fragile.”

ECB President Mario Draghi on Thursday also highlighted a “prolonged persistence of uncertainties” and the “rising threat of protectionism” as he signaled the central bank won’t shy away from action to support the euro-area economy. The ECB extended its pledge to keep interest rates at record lows and announced details on a program for infusing banks with more cheap cash.

Banks Fall

Shares of European lenders fell on the prospect that interest rates will stay low for longer, with the Bloomberg Europe 500 Banks and Financial Services Index declining as much as 1.7%. More than a decade after the financial crisis, the region is still contending with negative interest rates, which erode income from lending and burden banks with extra costs for holding cash.

Some executives brushed off the idea that the economic outlook had changed significantly since the start of the year. Frederic Oudea, who runs Societe Generale SA, said while there’s a “progressive” slowdown in the economy, banks just need to adapt their business model. SocGen is cutting 1,600 jobs after giving up its main mid-term targets for growth and profitability.

“I don’t think there’s anything specific today compared with the way we saw the world at the beginning of this year,” he said in an interview with Bloomberg TV.

Credit Suisse Group AG’s Tidjane Thiam, speaking at the same conference as Ermotti, said performance at his bank so far has been in line with a guidance given after the first quarter. The company at that time said it was “cautiously optimistic” for the second quarter.

Shocking Investors

Ermotti has been hit by a slew of bad news as of late, ranging from investor discontent with his strategy to the departure of his former investment bank head and a $5 billion penalty in a French tax case. That’s left the stock trailing the rebound seen by rivals Credit Suisse and Barclays Plc this year.

The UBS CEO shocked investors in March, when he described the first quarter as “one of the worst in recent history” for trading and warned of a slump in investment banking revenues. The bank’s results eventually turned out a little better after an improvement in late March and a strong performance by the wealth management business.

Ermotti rejected suggestions that the investment bank’s recent performance was related to the change in management, saying performance had been in line with peers.

The unit’s new co-heads “are doing a fantastic job,” and the trading woes have “nothing to do with management changes, its to do with the environment,” he said.