JPMorgan Expects Macroeconomic Uncertainty To Affect Revenues At UBS

JPMorgan’s Kian Abouhossein maintained a cautious stance on the banking sector, following the U.K.’s vote to leave the EU.

Abouhossein downgraded the rating on UBS Group AG (USA) UBS from Neutral to Underweight, while lowering the price target from SF16 to SF13.

The analyst expects banks exposed to U.K. credit to see an increase in CoE, given the significant uncertainty regarding the U.K. and EU banking sector.

Abouhossein explained the base case scenario was “a slowing EU economy leading to lower rates.”

Related Link: JPMorgan: Goldman Sachs Will Perform Better Than Peers

Revenues Impacted

The analyst expects a significant impact of the macro uncertainty created by the Brexit vote on IBD activity in 2H16 and does not see any meaningful cost offsets for this revenue decline, given that UBS has limited compensation flexibility.

Abouhossein believes “the significant decline in IB revenue environment with no clarity on passporting issues could potentially weigh on the IB performance in short to medium term.”

The EPS estimates for 2016-2018 have been lowered significantly, to reflect expectations of lower Private Banking and IB revenues.