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UBS Group AG’s freshly combined wealth management unit didn’t get off to the best start.

The business, which accounts for about half UBS’s pretax profit, posted first-quarter earnings that missed analyst estimates. That disappointment and lower-than-expected asset management results eclipsed a star performance at the investment bank, sending the shares down the most in three months.

Chief executive Sergio Ermotti has spent much of his tenure refocusing the bank on wealth management, shrinking investment-banking businesses including fixed-income trading. The bank is in the process of combining its two wealth-management businesses into a single one known as Global Wealth Management as it seeks to eliminate double functions and boost growth.

“First quarter results are disappointing across all divisions except investment banking and we do not expect consensus to upgrade but potentially see risks of downgrades,” mainly driven by costs and revenue misses excluding the investment bank, Kian Abouhossein, a analyst at JPMorgan Chase & Co. said in a note to clients.

UBS shares fell as much as 4.4 per cent to 16.45 francs ($21.60), the most since late January and were trading 3.8 per cent lower as of 9:23. a.m. in Zurich.

The bank appointed Martin Blessing and Tom Naratil in January as co-heads of the new global wealth management business. Profit before tax at the division was 1.1 billion francs ($1.4-billion), just under the company-compiled estimates of 1.2 billion francs ($1.6-billion). Net net new money of 19 billion Swiss francs ($25-billion) was also less than the 20.5 billion francs reported a year ago, though in line with the bank’s own targets ($26.9-billion).

The investment bank posted pretax profit of 589 million francs ($773.6-million), the Zurich-based bank said in an statement on Monday, beating the average estimate for 463 million francs ($608.1-million) in a company-compiled survey of 24 analysts.

Revenue from equities trading as well as advising on mergers, IPOs and debt issuance helped fuel gains at the investment bank, with UBS saying that excluding currency effects the results would have been even stronger. The bank gave a mixed outlook for the second quarter, saying U.S. interest rates rises will support dollar income and that there’s good momentum in the business even as some funding costs rise and volatility is muted.

Rejigged Targets

Mr. Ermotti rejigged the bank’s targets earlier this year, committing to buy back as much as 2 billion francs ($2.6-billion) of stock over three years. The buyback will start in the second quarter, UBS said on Monday. It’s also targeting 2 per cent to 4 per cent growth in net new money for global wealth management and a cost to income ratio of less than 75 per cent for the group.

Mr. Ermotti is shifting UBS into expansion mode and returning capital to shareholders after merging the bank’s two wealth management units into one division that manages more than US$2-trillion. The Swiss bank, which has increasingly focused on banking for rich clients, is prioritizing growth in the United States and Asia, where it expects the wealth of ultrahigh-net-worth individuals to increase quicker than elsewhere.

In the second quarter, funding costs will be higher related to long-term debt and capital instruments, while the bank also cautioned that market volatility remains muted. The bank’s CET1 ratio – a key factor of financial strength – dropped to 13.1 per cent in the first quarter, below company-compiled estimates for 13.3 per cent.

The investment bank now generates most of its income from equities, dealmaking and underwriting and benefited from a return to volatility in the first quarter, although Mr. Ermotti warned in a Bloomberg Television interview that client activity was more muted in February and March.

Mr. Ermotti said earlier this year the bank is considering reporting results in U.S. dollars rather than Swiss francs to help avoid currency headwinds. In the Bloomberg Television interview on Monday, he said about 70 per cent of the bank’s client asset base is U.S. dollar-based and the shift to dollar-reporting will happen later this year.

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