Rich clients add US$22b to UBS this year as Q1 net profit beats estimates

The bank said it was on track to meet its capital return objectives and cost cuts announced in March should pay off in the second half.
The bank said it was on track to meet its capital return objectives and cost cuts announced in March should pay off in the second half.PHOTO: REUTERS

ZURICH (BLOOMBERG) - UBS Group's first quarter turned out better than investors may have expected after chief executive officer Sergio Ermotti's dire outlook last month.

The market environment improved at the end of March and into April, the largest Swiss bank said on Thursday. Net income of US$1.14 billion beat analysts estimates, and wealth management, UBS's biggest business, attracted more than US$22 billion in new money.

Ermotti last month described the first quarter as one of the worst in recent history, forcing the bank to slow hiring and cut an additional US$300 million in costs. The bank has slashed thousands of investing banking jobs over the past decade in a pivot toward private banking that has become a blueprint for rivals including Credit Suisse Group. While that shift has reduced earnings volatility, it's left the bank open to revenue dips after market corrections or when clients stay on the sidelines.

Investment banking revenues declined 27 per cent from a year ago while revenues in global wealth management were down about 9 per cent, in line with the guidance given by Mr Ermotti last month. The bank said it was on track to meet its capital return objectives and cost cuts announced in March should pay off in the second half.

UBS had set a goal to return as much as US$1 billion through share repurchases this year. It plans to resume buybacks this quarter, the bank said today.

Mr Ermotti's comments come after Credit Suisse on Wednesday said its "cautiously optimistic" as client confidence returns and positive momentum in March continues into April. CEO Tidjane Thiam, whose bank remains more dependent on trading, suggested the bank benefited from selling investment banking products to wealthy clients in the first quarter, helping it beat Wall Street peers in trading during the quarter.

At UBS, which pioneered that cross-selling model in Switzerland, equities revenue was down 22 per cent, driven by derivatives and lower revenue from business with hedge funds. The comparison with last year's first quarter was particularly challenging because the bank benefited from a boom in trading at that time. UBS also depends more on equities than its smaller Zurich rival, a business that fared worse in the first quarter than fixed income trading.

Mr Ermotti has been hit by a slew of bad news as of late, ranging from investor discontent with his strategy to the departure of his former investment bank head to a US$5 billion penalty in a French tax case. That's left the stock trailing the rebound in shares of its main rivals this year.

The asset management unit - the business of selling funds to less affluent investors - has struggled to gain scale for years, and UBS is now evaluating options including a partial sale or merger of the operations, people with knowledge of the matter have said. The Swiss bank has considered seeking to acquire Deutsche Bank's asset manager DWS Group, potentially to combine it with its own business and spin off the two as a separate entity, the people said, asking not to be identified because the matter is private.