UBS Group AG shares slumped after weaker-than-expected profit in the second quarter, as the global market sell-off kept wealthy clients on the sidelines and institutional investors pulled funds.

The Zurich-based bank reported net income of $2.1 billion, compared with analyst estimates of $2.4 billion. The quarter was impacted by lower revenues at the key wealth management business, outflows in asset management and investment banking results that also trailed expectations.

Global banks are confronting the reality of surging prices and slowing economic growth, while lockdowns in China have hurt demand for trading and investment products. While Zurich peer Julius Baer Group Ltd. this week signaled optimism that the “worst is through” for the equities sell-off, UBS said it expects client nervousness to persist.

“We saw private clients, given all the uncertainty, sidelining their money and waiting for things to clear up,” Chief Executive Officer Ralph Hamers said in an interview with Bloomberg Television’s Manus Cranny. Earlier, he called the second quarter “one of most challenging periods for investors in the last 10 years.”

UBS shares were down 7.3% as of 12:58 in Zurich.

“UBS is underperforming US peers so far both on the investment banking side as well as Morgan Stanley in US wealth management performance,” JPMorgan analysts led by Kian Abouhossein said in a note to investors. “The CEO outlook statement is still muted. So, today, UBS should underperform the market.”

The Swiss bank posted pre-tax profit for its wealth management business of $1.16 billion, weighed down by a slump in client trading activity particularly in the Americas and Asia. While Asia posted stronger inflows that could signal an activity rebound ahead, overall net new fee-generating assets were muted.

The asset management division suffered $12.1 billion in outflows as investors exited equities during the turbulent quarter. The unit’s revenue included a gain from the sale of UBS stake in a Japanese real-estate venture partly held with Mitsubishi Corp.

UBS’s investment bank, which is heavily geared toward equities, posted profit before tax of $410 million in the second quarter, compared with analyst estimates for income of about $511 million. Trading revenue was up 4%, after the effects of last year’s default of Archegos Capital Management were accounted for.

UBS also cited lower compensation costs at the investment bank, as the market declines cool what had been a fierce bidding contest for talent.

By comparison, US banks recorded an average 31% gain in trading fixed income, currencies and commodities in the quarter, and an 8% average boost to equities trading revenues.

UBS confirmed its plans to buy back around $5 billion in shares this year, with more than $3 billion already completed in the first half.

The lender also signaled the potential for higher litigation provisions relating to a long-running French tax evasion case, and said that in general, the bank continues to be “exposed to a number of significant claims and regulatory matters.”

UBS confirmed it is cooperating with US authorities on a probe “relating to business communications sent over unapproved electronic messaging channels” --  a reference to the regulatory crackdown on using services including WhatsApp that’s set to cost investment banks including Morgan Stanley about $1 billion in fines.

Russia’s invasion of Ukraine has sent a jolt through markets as investors tap banks for protection against inflation, hedge against currency swings and take positions in choppy stock markets. European lenders are also benefitting from the first increases in official interest rates in more than a decade.

Earlier this year, UBS said it halted all new business in Russia, where it had about 70 employees, and is in the process of reducing its exposure to the region. Since then, the bank disclosed a $100 million hit from Russia-related transaction settlements in the first quarter and said it could rise in the second quarter.

After surpassing the $3 trillion mark in assets under management, the Swiss bank under Hamers is counting on greater use of digital technology to boost cost savings and increase business with the world’s wealthy. UBS agreed to buy US robo-adviser Wealthfront in January and has launched several mobile applications in Europe and Asia, seeking to encourage clients to engage on investments in the same way they browse Netflix for movies.

Earlier this month UBS appointed Iqbal Khan as sole head of the global wealth-management business, potentially setting him up as an eventual successor to Hamers. Tom Naratil, who co-led the private-banking business with Khan, is leaving UBS after 39 years with the firm, stepping down as co-head of wealth and president of UBS’s business in the Americas.

New UBS Chairman Colm Kelleher along with Hamers has met with major U.S. investment houses over the past few months in a bid to convince them to increase their holdings, as they seek to strengthen the lender’s position as a global bank and offset the slowdown in Asia. 

This article was provided by Bloomberg News.