UBS Q3 profit beats expectations as investment banking rebounds, legal costs ease
Solid quarter offers respite for UBS CEO Ermotti after string of setbacks
[ZURICH] UBS Group profit beat expectations in the third quarter as investment banking revenue and lower-than-forecast legal costs boosted performance.
The Zurich-based bank said net income was US$2.5 billion in the three months through September, compared with a consensus for US$1.4 billion. The result was aided by a release of provisions related to the settlement of a tax evasion case in France and a legacy Credit Suisse legal issue.
Inflows at the key wealth management unit came ahead of estimates in at US$38 billion, though pre-tax profit at there was below estimates. Underlying revenue at the investment bank gained 23 per cent as trading and advisory enjoyed a surge in deal-making that has also buoyed Wall Street peers.
A robust quarter for UBS chief executive officer Sergio Ermotti may come as a respite from a period when the bank has seen a string of negative developments including the collapse of US auto parts supplier First Brands.
The lender is currently facing years of uncertainty due to a US$26 billion increase in capital requirements proposed by the Swiss government.
In its outlook, UBS said that in the fourth quarter activity in the investment bank is likely to normalise compared with a strong period a year ago. Valuations are elevated across most asset classes, it said, and investors are increasingly focused on hedging downside risks.
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Last week UBS reshuffled its leadership and proposed Markus Ronner to succeed Lukas Gaehwiler as vice-chair. Michelle Bereaux will take on the role of group head compliance and operational risk control, while current head of non-core unit Beatriz Martin is becoming group chief officer.
The bank is examining the impact of the bankruptcy of First Brands Group on several of its investment funds. UBS has over US$500 million in exposure to First Brands debt and through supply chain finance agreements, spread across funds including UBS Hedge Fund Solutions and UBS O’Connor.
The exposures sit in investment funds rather than on the UBS balance sheet, though the issue has raised questions over risk management. The collapse is also calling into doubt the sale of UBS’s O’Connor hedge fund unit to Cantor Fitzgerald.
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AT1 blow
Earlier this month, a Swiss court delivered a ruling that added fresh legal uncertainty to UBS. In a surprise move, the court said Switzerland’s 2023 order to wipe out some US$17 billion in AT1 convertible bonds issued by Credit Suisse was unlawful. UBS said Wednesday that it plans to appeal that decision.
UBS has launched a previously announced share buyback of as much as US$2 billion for the second half of this year, remaining on track for a total this year to US$3 billion. The bank said its CET1 ratio at the end of this year will reflect accruals for buybacks in 2026. BLOOMBERG
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