UBS profit misses estimates as investors flee market slump
UBS Group reported weaker-than-expected profit in the second quarter, as the global market sell-off kept wealthy clients on the sidelines and institutional investors pulled funds.
The Zurich-based bank reported net income of US$2.1 billion, compared with analyst estimates of US$2.4 billion. The quarter was impacted by lower revenues at the key wealth management business, outflows in asset management and investment banking results that also trailed expectations.
UBS confirmed its plans to buy back around US$5 billion in shares this year.
Global banks are confronting the reality of surging prices and slowing economic growth, while lockdowns in China have hurt demand for the trading and investment products. Yet higher interest rates promise better returns for lenders, and Zurich peer Julius Baer this week added to optimism that the "worst is through" for the equities sell-off.
"The second quarter was one of most challenging periods for investors in the last 10 years," chief executive officer Ralph Hamers said in the earnings release on Tuesday (Jul 26). "Inflation continues to be high, the war in Ukraine is ongoing, as are strict Covid policies in parts of Asia."
The Swiss bank posted pre-tax profit for its wealth management business of US$1.16 billion, weighed down by a slump in client trading activity, particularly in the Americas and Asia. Net new fee generating assets were muted, with US$400 million in inflows.
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The asset management division suffered US$12.1 billion in outflows as investors exited equities during the turbulent quarter. The unit's revenue of US$1.37 billion included a gain of US$848 million from the sale of UBS stake in a Japanese real-estate venture partly held with Mitsubishi.
UBS's investment bank, which is heavily geared toward equities, posted profit before tax of US$410 million in the second quarter, compared with analyst estimates for income of about US$511 million. Trading revenue was up 4 per cent after the effects of last year's default of Archegos Capital Management were accounted for.
By comparison, US banks recorded an average 31 per cent gain in trading fixed income, currencies and commodities in the quarter and an 8 per cent average boost to equities trading revenues.
Russia's invasion of Ukraine has sent a jolt through markets as investors tap banks for protection against inflation, hedge against currency swings and take positions in choppy stock markets. European lenders are also benefitting from the first increases in official interest rates in more than a decade.
Earlier this year, UBS said it halted all new business in Russia, where it had about 70 employees, and is in the process of reducing its exposure to the region. Since then, the bank disclosed a US$100 million hit from Russia-related transaction settlements in the first quarter and said it could rise in the second quarter.
After surpassing the US$3 trillion mark in assets under management, the Swiss bank under Hamers is counting on greater use of digital technology to boost cost savings and increase business with the world's wealthy. UBS agreed to buy US robo-adviser Wealthfront in January and has launched several mobile applications in Europe and Asia, seeking to encourage clients to engage on investments in the same way they browse Netflix for movies.
Earlier this month UBS appointed Iqbal Khan as sole head of the global wealth-management business, potentially setting him up as an eventual successor to Hamers. Tom Naratil, who co-led the private-banking business with Khan, is leaving UBS after 39 years with the firm, stepping down as co-head of wealth and president of UBS's business in the Americas.
New UBS Chairman Colm Kelleher along with Hamers has met with major US investment houses over the past few months in a bid to convince them to increase their holdings, as they seek to strengthen the lender's position as a global bank and offset the slowdown in Asia. BLOOMBERG
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