By Brenna Hughes Neghaiwi
ZURICH (Reuters) - UBS warned of a tough start to 2019 after fourth-quarter earnings fell short of expectations in conditions Chief Executive Sergio Ermotti described as "historically tough".
The first major European bank to report results said client activity in the first quarter of 2019 would be affected by a "lack of progress in resolving geopolitical tensions, rising protectionism and trade disputes along with increased volatility."
These factors had already weighed on investor sentiment and confidence in the second half of last year, Switzerland's biggest bank said.
Overall, the bank generated $862 million in fourth-quarter pre-tax earnings, missing analyst expectations for $985 million in its own consensus report, hit by an outflow of funds in its flagship wealth management business and a slide in investment bank earnings.
Shares fell around 4 percent in early trade.
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Zurich-based UBS, which manages more than $2 trillion of the world's wealth, posted a 22 percent dip in fourth-quarter adjusted pre-tax earnings in its flagship wealth management business as clients reduced risk in their portfolios, traded less and built up their cash positions.
The unit saw $7.9 billion in net new money outflows, a closely watched metric of future earnings.
The investment bank also had a torrid quarter with a fall in earnings in its trading as well as capital markets and advisory businesses.
In equities, usually an area of strength, UBS posted a double-digit percentage drop in earnings from a year earlier, bucking the trend seen at U.S. banks last week which largely had a strong quarter for stock market trading.
"We see mid-single digit percentage downgrades to consensus earnings per share, mainly on the weak investment bank result and the lower assets under management base in Global Wealth Management," Citi analysts said in a note.
They added that a target to deliver a reported return on common equity tier 1 (CET1) capital of around 15 percent in 2019 now looked difficult to achieve. Its reported return on CET1 capital stood at 14.2 percent for 2018.
Full-year net profit rose to $4.897 billion from $969 million in 2017, when a one-off 2.9 billion franc hit from U.S. tax reforms dampened results. Five analysts polled by Reuters on average had forecast a net profit of $4.906 billion for 2018.
The bank proposed a dividend of 0.70 Swiss francs for 2018, up from 0.65 Swiss francs the prior year, and said it aimed to buy back up to $1 billion in shares in 2019.
($1 = 0.9976 Swiss francs)
(Reporting by Brenna Hughes Neghaiwi; Editing by Michael Shields)