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UBS profit beats as rising US rates lift investment bank
[ZURICH] UBS Group AG said profit more than tripled in the fourth quarter as the bank put less money aside for litigation, while rising interest rates and stocks boosted the securities unit and US wealth management.
Profit before tax rose to 848 million francs (S$1.202 billion) from 234 million francs a year earlier, the Zurich-based bank said Friday in a statement. Analysts surveyed by Bloomberg had estimated earnings of 359 million francs, according to the median of seven estimates. UBS said it achieved 1.6 billion francs of net cost savings at year-end and is on track to meet a savings target of 2.1 billion francs by the end of 2017.
"Despite a very challenging market environment in 2016, we achieved solid results," chief executive officer Sergio Ermotti said in the statement. Higher interest rates in the US and improved investor confidence there should help offset the impact of negative central bank rates in Switzerland and the euro region, the bank said.
Now in his sixth year as CEO, Mr Ermotti has stepped up cost-cutting to help offset shrinking profit margins and is using technology to streamline wealth management, UBS's main business since he scaled back the investment bank four years ago. He said this month that he expects to add about US$50 billion in new assets across wealth management and asset management this year, with the US looking like a "promising market" for the bank.
The Swiss lender, among a few European banks still facing a US investigation over mortgage securities in the run-up to the 2008 crisis, set aside an additional 162 million francs to cover litigation expenses, less than analysts anticipated. Credit Suisse Group AG and Deutsche Bank AG last month agreed to a combined US$12.5 billion in settlements to end similar Justice Department probes. Royal Bank of Scotland Group Plc said Thursday that it will take a 3.1 billion-pound (S$5.533 billion) charge in its fourth-quarter results for mortgage securities litigation.
US Business Wealth management Americas, the firm's US brokerage, reported a pretax profit of 339 million francs, compared with 14 million francs a year earlier. The gain was driven by lower provisions for litigation and higher recurring fees and net interest income, the bank said, even as clients pulled a net US$1.3 billion during the quarter.
There "is clearly a US momentum," Mr Ermotti said in an interview in Davos at the World Economic Forum earlier this month. UBS chairman Axel Weber said at the same event that UBS is looking for targeted acquisitions in Asia and the Americas.
Profit at the wealth management division, which caters to rich clients globally, rose to 368 million francs before taxes, from 344 million francs a year earlier. The unit, led by Juerg Zeltner, saw 4.1 billion francs in net redemptions during the quarter, mainly from emerging markets and Asia.
At the investment-banking unit, led by Andrea Orcel, pretax profit rose to 306 million francs from 80 million francs a year earlier. Revenue from trading equities rose 22 per cent in the quarter from the previous year, as income rose in all products.
Underlying revenues from trading fixed income and currencies, adjusted for a disposal, fell as high volatility weighed on emerging market products, foreign exchange and interest rate options.