UBS profit beats estimates as rates offset trading slowdown

UBS Group reported fourth-quarter profit that beat expectations, and said that it plans to buy back more than US$5 billion of shares this year, as rising interest rates helped offset a slump in trading fees and transaction income in its key wealth-management business.

The Zurich-based bank reported net income of US$1.65 billion on Tuesday (Jan 31), aided by a 35-per-cent surge in interest income at its wealth-management unit, the margin that the company makes on loans. Earnings for that business broadly met estimates, with the bank reporting US$23.3 billion in wealth inflows. Revenues at the investment bank fell by 24 per cent, while compensation costs rose. 

While UBS has stood out among global peers in its confidence that large-scale job cuts seen at Goldman Sachs and elsewhere can be avoided, it is still contending with the impact of a slowdown in client activity and volatile markets. Cost pressures playing out across the industry were particularly acute at the investment bank, while wealth management fees fell as clients held back from trading in the final three months of a year in which markets whipsawed.

UBS chief executive officer Ralph Hamers said that inflation, the war in Ukraine, and the impact of Covid in China had kept investors in wait-and-see mode during the quarter. 

“We see positive news coming on China, we see positive news also on inflation,” he said. “The next couple of weeks, from different sides, will give us much more data points to get a feel for whether we should be risk-on or not.”

The bank increased the dividend for 2022 to US$0.55 per share.

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UBS’ investment banking unit posted US$1.68 billion in revenue in the fourth quarter, while operating expenses increased 3 per cent on higher variable pay. The cost-to-income ratio at the investment bank jumped more than 24 percentage points. Revenue in advisory and capital markets slumped 52 per cent in the quarter, broadly in line with Wall Street peers. 

While rich clients continued to bring assets for UBS to manage, on average they were less active in seeking trading and investment services against the uncertain market backdrop. Revenues at the key wealth-management unit declined 5 per cent from the previous year, driven partly by transaction-based income, which fell 19 per cent in the quarter. 

Question marks remain over UBS’ wealth-management strategy in the US, after chief executive officer Ralph Hamers’ signature push into a broader wealth segment was abandoned last year.

Hamers faced a major setback in September, when the bank announced that it was pulling out of a deal to buy US robo-advisor Wealthfront. Instead, UBS has retrenched, saying that it would focus on its traditional very-high-net-worth customer base. The bank plans to offer more traditional banking services to its wealthy American clients. It will also set targets for its expansion in wealth management in the US, said chairperson Colm Kelleher. 

UBS is seeking to expand its operations in the Middle East, with a particular focus on wealthy Indians living in the region. Earlier this month, the bank hired a group of private bankers from Credit Suisse in Dubai to focus on its business that caters to the diaspora. 

UBS experienced significant inflows into its Asian wealth-management business in the last three months of 2022, as rich customers fled its biggest rival. Credit Suisse clients concerned over the turmoil that the bank has been experiencing are approaching UBS as an alternative for managing their wealth. 

UBS expects a boost in its China business in the second half of the year, as the country moves away from a zero-Covid policy and reopens the economy. 

In asset management, revenues fell 31 per cent from a year earlier, with management fees down 25 per cent on market performance and currency effects, the bank said. The cost-to-income ratio also rose in the unit, by 21.5 percentage points. BLOOMBERG