UBS joins Wall Street rivals with Q3 profit surge

Zurich

UBS Group posted a surprise jump in profit as wealth management fees soared the most in almost three years and the firm followed Wall Street rivals in seizing on the deal boom.

The Zurich-based bank topped expectations on most key metrics, including investment banking pre-tax profit that was almost double what analysts had predicted. At the key wealth management business, surging client activity led to a 23 per cent increase in recurring fee income and almost US$19 billion of net new fee-generating assets.

Chief executive Ralph Hamers has consistently posted better than expected profits since taking over, while leaving investors guessing about his broader plans for making Switzerland's largest bank more digital and other strategic priorities. He has also kept investors in the dark on financial targets, pledging to give new goals on Feb 1 even after UBS surpassed most of its previous aims.

"The market and economic backdrop were broadly positive in the third quarter, although there has been some uncertainty recently," Hamers said in a statement, referring to recent global debate around inflation, volatile markets and the Evergrande crisis.

While the third quarter was marked by "unusually high levels" of client activity, UBS warned that there may be a slowdown in the final quarter of the year. The bank also signalled that persistent economic, social and geopolitical tensions are raising questions about the sustainability of the recovery from Covid.

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Hamers, who joined UBS from ING Groep where he pushed the Dutch bank's innovation, wants to use artificial intelligence to better pitch the world's wealthy and rethink what markets the bank operates in, with a focus on investing more in the Asia-Pacific and Americas region.

In a Bloomberg TV interview, Hamers said he is planning a digital bank in the US to tap mass affluent clients.

Highlights from UBS's third-quarter earnings:

• Pre-tax profit of US$2.9 billion vs estimates of US$2.09 billion
• Net income of US$2.2 billion vs estimates of US$1.55 billion
• Wealth management pre-tax profit of US$1.51 billion, vs estimate of US$1.2 billion
• Investment bank pre-tax profit of US$837 million, vs estimate of US$483.2 million
• Wealth management cost-to-income ratio improved to 69.8 per cent
• Fixed income revenue declined 32 per cent, equities revenue gained 24 per cent

At the investment bank, earnings were driven by soaring demand for advice on areas such as mergers and acquisitions and IPOs, with global banking revenue 22 per cent higher. Markets revenue fell by 7 per cent, mirroring other Wall Street firms that were unable to match their performance in fixed income trading from a year earlier when the pandemic had whipsawed markets.

"While strong investment bank results were partly anticipated based on peers reporting, we see these operating results as strong across divisions," JPMorgan Chase analysts led by Kian Abouhossein said in a note to clients.

UBS, whose earnings are very sensitive to US dollar rates, is facing a potential tailwind for future quarters as talk of increasing rates continues to build. A 100 basis point increase in yield curves would boost net interest income by US$1.5 billion in its wealth and Swiss business, according to the bank's previous financial statements.

Higher rates will be a welcome relief for the bank, which has had to contend with negative interest rates in its home country for years and which was exacerbated when rates decreased across the world.

The bank is still fighting a US$4.5 billion penalty in France. A delayed French court decision to December has moved any related litigation costs into the fourth quarter results. The CEO himself is still the subject of a Dutch probe into his role in a money-laundering case at this former employer ING. BLOOMBERG