(Bloomberg) — UBS Group AG triggered margin calls on some wealth management clients that use Russian bonds as collateral for their portfolios after marking down the value of debt issued by the country and its corporations.
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The Swiss wealth manager is calling on some investors to add either cash or securities to their portfolio after cutting the lending value of some Russian bonds to zero, people with knowledge of the matter said. While the sovereign bonds still trade around 50 cents on dollar, and many Russian corporate bonds are well above that, UBS’s move signals it essentially will no longer accept them as collateral.
The bank may liquidate the securities at market value for those clients that can’t meet the additional requirements, the people said, asking not to be identified as the matter is private.
UBS, which says it caters to half the world’s billionaires, had $447 million of banking products including loans and guarantees to Russia in 2020. Wealth co-heads Iqbal Khan and Tom Naratil two years ago set a goal of doubling assets under management for the Central and Eastern Europe wealth business, which includes Russia.
Rival Swiss private bank Pictet is also cutting the values of Russian assets in investors portfolios, according to people familiar with the matter.
UBS and Pictet declined to comment.
Russia’s sovereign bonds plummeted Thursday, taking some to distressed levels, as President Vladimir Putin’s decision to order a military attack on Ukraine cast a pall over global markets. The nation’s shares slumped the most on record after a trading suspension ended, while the ruble reached a record low. The moves were part of a global flight to safety as stocks tumbled worldwide and oil soared.
Banks ask investors to add cash or securities to a portfolio that typically also includes some borrowed funds or securities when the market value falls below a predetermined limit, often during a market rout or other event. When the bank makes the so-called margin call, it can forcibly liquidate clients holdings if they are unable or unwilling to deposit the funds.
UBS previously saw a spike in margin calls during the volatility induced by the start of the pandemic in the spring of 2020, outgoing Chief Financial Officer Kirt Gardner said at the time. He told analysts and investors that the bank experienced very few losses because of its conservative risk profile.
(Adds details on Russia business in third paragraph)
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