UBS wealth management delivers on targets after megamerger

[ZURICH] UBS Group AG's newly-combined US$2 trillion wealth management business and investment bank are helping Chief Executive Officer Sergio Ermotti deliver on growth plans.

The wealth management business -- which counts many of the world's billionaires among its clients -- posted profit excluding litigation charges slightly ahead of estimates and brought down costs within its target range. Andrea Orcel's investment bank also delivered a stellar performance for a second-straight quarter as revenue from equities trading surged.

Ermotti is overseeing one of the most stable lenders in Europe seven years after a sweeping revamp of the bank which reduced risk and tilted the bank towards wealth management. While that's producing steady profits, the lender is buying back stock and rejigged financial targets this year after investors argued the CEO should do more to boost the stock price.

UBS shares rose 2.9 per cent to 15.74 francs as of 9:05 a.m. in Zurich and have declined about 8.7 per cent this year.

Profit at global wealth management rose to 1.04 billion francs, compared with 879 million francs a year ago. That helped compensate for one of the biggest surprises in the newly combined business -- about 9 billion francs outflows related to tax-related withdrawals in the US and a corporate employee share program, contributing to net outflows. That compares with the 19 billion francs of net assets UBS added in the first quarter.

Revenue from equities, foreign exchange and credit trading helped fuel gains at the investment bank as UBS benefited from similar trends to US rivals. The investment bank posted pretax profit of 569 million francs, the Zurich-based bank said in a statement, beating the average estimate for 397 million francs in a company-compiled survey.

Ermotti changed the bank's targets earlier this year, committing to buy back as much as 2 billion francs of stock over three years and targeting 2 per cent to 4 per cent growth in net new money for global wealth management and a cost-to-income ratio of under 75 per cent for the group. That left many investors and analysts cold, arguing that the new targets were too conservative and that the bank had more room for repurchases.

In a Bloomberg Television interview on Tuesday, Ermotti said the bank expects to achieve the target for net new money this year.

Wealth Merger

To benefit from the same synergies as U.S. rivals -- with pooled infrastructure and clientele -- Ermotti in January tasked Tom Naratil, head of the US wealth business, and Martin Blessing, the former chief executive officer of Commerzbank AG, with the merger of the divisions, now known as global wealth management, after the surprise departure of Juerg Zeltner.

UBS scaled back its investment bank after the financial crisis. The lender has cut the amount of capital allocated to the investment bank, focusing on areas such as equities, foreign exchange and advisory services. Moody's boosted its credit rating for UBS's main unit last month, which said that the restructured investment bank and wealth-management business should help the lender weather a market downturn.

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