UBS posts US$2.1b net profit in third quarter amid heavy turnover in global markets

Zurich

UBS on Tuesday posted a 99 per cent jump in third-quarter profit as heavy turnover in global markets helped the bank to a strong performance in investment banking and an unexpected rise in wealth management earnings.

In chief executive Sergio Ermotti's last month at the helm, net profit for the world's largest wealth manager climbed to US$2.1 billion for July-September, handily beating expectations for US$1.557 billion.

"Our third-quarter results continue to demonstrate that our strategy is differentiating us," Mr Ermotti, who will be replaced in November by former ING head Ralph Hamers, said in a statement. "UBS has all the options open to write another successful chapter of its history under Ralph's leadership."

Shares opened 2.2 per cent higher, also bolstered by 2021 buyback hopes. Investment banking saw earnings more than triple during the quarter thanks to a spike in trading and equity capital markets work which more than offset a fall for its advisory business.

Revenue in both its equities and foreign exchange, rates and credit units was up just over 40 per cent compared to a year earlier. Asset management saw profits grow six times from a year ago. Despite a client shift into lower-margin funds which put pressure on recurring fees, wealth management posted an 18 per cent rise in pre-tax profit thanks to high levels of client transactions and US$10 billion in net new loans. Analysts had expected earnings to fall in the bank's core division.

Assets under management in the wealth division rose to an all-time high of US$2.754 trillion, while net new money fell to US$1.4 billion following a US$4 billion withdrawal by a single client in the Europe, Middle East and Africa region. UBS said it has so far accrued US$1 billion for a cash dividend to be paid out next year, and has also set aside US$1.5 billion in capital reserves for potential share repurchases.

The sharp profit rise for Europe's first major lender to report third-quarter results follows a mixed performance for big US banks that saw those focused on trading clocking big gains while retail banks took a hit from the pandemic.

The robust showing by UBS' investment bank marks an ironic sendoff for Mr Ermotti, who during his near-decade at the helm radically shrank the division and ramped up its focus on serving the world's rich.

He also wound down most of UBS' fixed income business, a source of volatile earnings and the biggest trading fraud in British history, to focus on wealth management in a strategy soon followed by cross-town rival Credit Suisse.

But, as Mr Ermotti hands over to Mr Hamers, wealth management is contending with fierce margin pressure as well as rising global competition from powerhouses including US giant Morgan Stanley, which last week crushed Wall Street profit estimates, with wealth management revenues up 7 per cent, while smaller Swiss wealth management rival Julius Baer on Monday beat expectations on stronger client inflows.

So far this year, UBS' shares have dropped around 12 per cent, better than the 25 per cent plus falls experienced by Credit Suisse and JPMorgan but underperforming Morgan Stanley stock which is up around half a percentage point.

Since Mr Ermotti took the reins in September 2011, the bank's stock has seen a total 10 per cent price gain. But its value has more than halved from a peak above 22 francs per share in 2015 under the weight of negative Swiss interest rates and geopolitical pressures. Over that same period, Credit Suisse shares have halved in value, while JPMorgan and Morgan Stanley shares have each more than tripled, reflecting the stronger position of Wall Street lenders in the wake of the global financial crisis. REUTERS