UBS profit beats estimates as rate hikes help buck market slump
UBS Group posted a robust quarter on the back of surging rates and cost control, enabling it to confirm a plan to return around US$5.5 billion to investors this year.
UBS said net income in the three months to September was US$1.73 billion, compared with analyst estimates of US$1.57 billion. The wealth management unit saw lending revenue jump amid client inflows of US$17.1 billion, while investment-banking revenue slumped.
The response to inflation by central banks in the US and Europe are giving banks a tailwind in lending revenue, helping to maintain ambitious dividend and buyback plans even as the economic outlook darkens. Global banks are nevertheless seeing equities and deal-making revenue hurt by the energy crisis, Russia’s war in Ukraine and the slowdown in China’s economy.
UBS chief executive officer Ralph Hamers is leading an effort to boost automation, slim down management ranks and expand the lender’s presence in the US where it is eclipsed by local rivals. He faced a major setback in September when the bank announced it was pulling out of a deal to buy US robo-advisor Wealthfront.
UBS shares gained the most since June, rising as much 5.8 per cent to trade at 16.02 Swiss francs as of 10:19 in Zurich. The bank said on Tuesday (Oct 25) that share buybacks should reach about US$5.5 billion this year, adding detail to previous guidance of more than US$5 billion.
“The macroeconomic and geopolitical environment has become increasingly complex,” Hamers said in the earnings release on Tuesday. The global uncertainty “may also affect client activity levels in the fourth quarter”, he warned.
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At US peers, revenue and earnings were up in most cases, beating analysts expectations. But with the the prospect of a recession edging closer, US banks are starting to prepare with higher loan provisions. JPMorgan Chase & Co added US$808 million to its loan provisions, whilst Wells Fargo set aside US$784 million. By contrast, UBS released credit-loss provisions of US$15 million in the personal and corporate banking unit.
Hamers insisted that the bank’s overall growth strategy for the US hadn’t been affected by the termination of the US$1.4 billion Wealthfront deal, which had been poised to push the bank into a broader, digital segment of wealth management. The exit in September followed a rout in tech stocks that made the earlier valuation appear unfavourable for the bank.
“A change in tactics is absolutely not a change in strategy,” Hamers said in a Bloomberg Television interview with Manus Cranny. “The strategy was never to do a deal, the strategy was always to grow organically and the opportunities you can look at in terms of accelerating your organic plans.”
Analysts at JPMorgan and Jefferies International pointed to strong cost control at the bank as an underlying reason for the above-estimate results.
“We like UBS for the net-interest-income upside without associated credit risk, attractive capital return and limited earnings risk,” Jefferies analysts including Flora Bocahut wrote in a note.
In wealth management, UBS saw client activity decline, with net fee income down 14 per cent. Even so, the unit posted a 23 per cent increase in the interest income charged on loans to wealthy clients. Profit before tax at the unit was up 4 per cent from a year ago at US$1.5 billion, higher than estimates. Recurring fee income fell 14 per cent on the back of market declines.
“I don’t think they’re in full fear,” Hamers said “But they’re more on the sidelines and not so much completely withdrawing from the markets.”
Hamers said he sees more upside for net interest income specifically in the euro area and in Switzerland next year, as central bankers continue a struggle against inflation.
UBS has been among the lenders hit by a slowdown in trading activity in Asia, driven by pandemic controls as well as a decreasing demand for exports. The tightening Covid controls in China have worried global investors since the start of the year.
Revenues at the investment-banking unit followed US peers, declining 19 per cent amid a broader slump in deal-making and equities. Advisory revenue fell 58 per cent. In asset management, total revenues were down 13 per cent from a year ago, with management fees down 10 per cent. BLOOMBERG
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