UBS surprises with 17% rise in Q1 profit to best since 2007

ZURICH (REUTERS, BLOOMBERG) - UBS’ first-quarter net profit rose 17 per cent on Tuesday (April 26) to its best since 2007 on the back of strong trading, upending expectations for a fall amid uncertainties over the war in Ukraine.

Net profit of US$2.14 billion (S$2.94 billion) for the March quarter outpaced average expectations for US$1.79 billion in a poll of 21 analysts compiled by the Swiss bank.

One of the first two major European banks to report results alongside HSBC, UBS’ earnings provided a sharp contrast to the profit declines that American peers reported this month.

Wall Street banks have come under pressure amid a slump in dealmaking globally, but volatility fuelled by concerns around interest rate hikes and the economic fallout of the Ukraine war have helped trading desks smash expectations.

UBS’ investment banking - weighted most heavily to equities - saw pre-tax profit soar 126 per cent, as a 59 per cent rise in global markets trading revenue helped offset a 30 per cent decline in capital markets and advisory revenue as dealmaking and initial public offerings slowed.

During the prior-year period, investment banking results were hampered by a US$774 million loss on the collapse of United States-based client Archegos. Excluding that, global markets revenue would have been up 4 per cent, UBS said.

Earnings at the private banking unit were less positive as a pullback by Asia-Pacific clients contributed to a 19 per cent drop in transaction-based income. 

UBS is giving the first insight into how European banks are navigating the turmoil caused by the geopolitical crisis and client reaction to headwinds including soaring inflation and rate rises. While rich clients are more cautious because of the economic and market outlook, investment banks are seeing resurgent trading in both fixed income and equities.

“The first quarter was dominated by extraordinary geopolitical and macro events,” UBS chief executive officer Ralph Hamers said in a statement. “With volatile markets driving trading volumes, we facilitated high volumes of trades, managed risks and provided access to liquidity.”

UBS is seeing a hit of about US$100 million related to Russia on derivatives, failed settlements and provisions against receivables, chief financial officer Kirt Gardner told reporters. The bank, which has reduced its exposure to the nation to about US$400 million, warned that it could see that amount increase because of settlement risk on open transactions. 

Credit Suisse Group said last week that first-quarter results will be hit by 200 million francs (S$286.3 million) of negative revenues and provisions for credit losses related to the invasion.