UBS (UBSG.S) posted a smaller-than-expected quarterly profit as turmoil in financial markets hurt its investment banking and wealth management businesses, with analysts predicting the Swiss bank will see harsh conditions in the second half as well.

The Zurich-based bank kicks off a round of earnings by major lenders across Europe, where analysts are watching for signs that a weaker economy, higher interest rates and the war in Ukraine are weighing on their operations and outlooks.

UBS (UBSG.S) posted a smaller-than-expected quarterly profit as turmoil in financial markets hurt its investment banking and wealth management businesses, with analysts predicting the Swiss bank will see harsh conditions in the second half as well.

The Zurich-based bank kicks off a round of earnings by major lenders across Europe, where analysts are watching for signs that a weaker economy, higher interest rates and the war in Ukraine are weighing on their operations and outlooks.

UBS shares traded 5% lower early on Tuesday. They are down 6.6% so far this year, outperforming a 23% fall in a broad index of European banks (.SX7E).

ZKB analyst Michael Klien said in a note uncertainties in financial markets related to the war, high energy prices and the COVID-19 pandemic “could also affect the level of customer activity” in the third quarter.

CLIENTS STAY IN THE SIDELINES

Its investment banking business saw revenue fall 14% to $2.1 billion from $2.5 billion a year ago. Analysts had expected $2.3 billion.

Advisory revenue was down 30% and capital markets revenue down 71%, which the bank attributed in part to lower business for initial public offerings.

At its wealth management division, its biggest business, revenue was $4.7 billion, down from $4.8 billion a year ago and versus expectations for $4.8 billion.

UBS said the drop was mainly a result of lower income from transaction fees and that clients in the Americas and Asia were especially on the sidelines. Outflows in asset management totalled $12 billion, primarily in equities.

It said it would make share buybacks as previously flagged in the months ahead.

Analysts with Jefferies said in a note they were surprised by the results, in which “pretty much all divisions missed”.

In recent months, the bank has signalled that its wealth management clients will continue to remain cautious due to geopolitical and macro-economic uncertainties.

Earlier in July, UBS named Iqbal Khan the sole head of the Swiss bank’s global wealth management division in an executive board reshuffle. read more

In a taste of challenges facing financial firms, Swiss wealth manager Julius Baer (BAER.S) said on Monday it would freeze hiring for non relationship manager positions after higher costs and lower client activity triggered a 26% drop in first-half earnings. read more

UBS’ smaller cross-town rival Credit Suisse (CSGN.S), which reports earnings on Wednesday, has warned of a likely second-quarter loss. Analysts on average expect the bank to report a loss of 60 U.S. cents per share