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UBS Group AG (UBS - Free Report) reported second-quarter 2018 net profit attributable to shareholders of CHF 1.28 billion ($1.30 billion), up around 9% from the prior-year quarter.
Results displayed rise in net fee and commission income (up 2% year over year) and strong capital position. However, the quarter reflected elevated expenses and lower net interest income (down 30%).
The company recorded improved profitability in Global wealth management and Investment Bank units. However, performance of Personal & Corporate banking, Corporate Center and Asset Management units was disappointing.
Rise in Operating Income Offsets High Expenses
Excluding the significant items, UBS Group’s adjusted operating income increased 5.4% to CHF 7.57 billion ($7.68 billion) from the prior-year quarter.
Adjusted operating expenses jumped 4.6% year over year to CHF 5.76 billion ($5.84 billion). Expenses included provisions for litigation, regulatory and similar matters of CHF 131 million ($133 million).
Business Division Performance
The global wealth management division’s adjusted operating profit before tax came in at CHF 1.08 billion ($1.10 billion), up 7% year over year. Higher net interest margins and elevated invested assets, along with loan growth, mainly aided revenues. Net new money outflow of CHF 1.2 billion ($1.2 billion) was recorded in the quarter.
The Asset Management unit’s adjusted operating profit dipped 5% year over year to CHF 126 million ($128 million) in the quarter, marred by lower performance fees.
The company’s Investment Bank unit’s adjusted operating profit before tax came in at CHF 605 million ($614 million), up 44% from the prior-year quarter. Higher equities revenues with growth in all product lines aided the results.
Personal & Corporate banking division’s adjusted operating profit before tax was flat year over year at CHF 378 million ($383.7 million). Higher transaction-based and recurring net fee income along with stable expenses offset interest rate headwinds. Notably, annualized net new business volume growth for personal banking was 3.9%.
Corporate Center reported adjusted operating loss before tax of CHF 385 million ($390.8 million) compared with a loss of CHF 269 million in the year-ago quarter.
Strong Capital Position
As of Jun 30, 2018, UBS Group's invested assets were CHF 3.24 trillion ($3.29 trillion), up 11.4% year over year. Total assets came in at CHF 944.5 billion ($958.6 billion), inching up around 6%.
UBS Group’s phase-in common equity tier (CET) 1 capital ratio was 13.4% as of Jun 30, 2018, compared with 13.5% as of Jun 30, 2017. Furthermore, phase-in CET 1 capital increased 6.1% year over year to CHF 33.8 billion ($34.3 billion) as of Jun 3, 2018. Fully applied risk-weighted assets climbed 6.6% to CHF 252.4 billion ($256.2 billion).
Outlook
Though geopolitical tensions persist, management believes global economic growth prospects will continue supporting markets.
The bank’s businesses in the third quarter are expected to be impacted by seasonality along with subdued market volatility leading to low client-activity levels.
Funding costs associated with long-term debt and capital instruments issued per regulatory requirements are projected to escalate in the third quarter on a year-over-year basis.
Notably, management expects gradual rise in U.S. dollar interest rates and an improved U.S. economy to aid net interest income. Additionally, continued momentum in businesses is estimated to report improved results in the third quarter, reflecting a diversified business model, and progress toward achievement of strategic and financial targets.
Our Take
Results highlight a decent quarter for UBS Group, with its major units displaying growth. We remain optimistic as the company managed to sustain profitability amid a number of headwinds encountered in the quarter. Though the bank remains focused on building its capital levels, escalating costs is a concern
Among other foreign banks, Deutsche Bank AG (DB - Free Report) will report June quarter-end results on Jul 25, Itau Unibanco Holding S.A. (ITUB - Free Report) on Jul 30 and Mitsubishi UFJ Financial Group, Inc. (MUFG - Free Report) on Aug 7.
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UBS Group's (UBS) Q2 Earnings Impress, Expenses Increase
UBS Group AG (UBS - Free Report) reported second-quarter 2018 net profit attributable to shareholders of CHF 1.28 billion ($1.30 billion), up around 9% from the prior-year quarter.
Results displayed rise in net fee and commission income (up 2% year over year) and strong capital position. However, the quarter reflected elevated expenses and lower net interest income (down 30%).
The company recorded improved profitability in Global wealth management and Investment Bank units. However, performance of Personal & Corporate banking, Corporate Center and Asset Management units was disappointing.
Rise in Operating Income Offsets High Expenses
Excluding the significant items, UBS Group’s adjusted operating income increased 5.4% to CHF 7.57 billion ($7.68 billion) from the prior-year quarter.
Adjusted operating expenses jumped 4.6% year over year to CHF 5.76 billion ($5.84 billion). Expenses included provisions for litigation, regulatory and similar matters of CHF 131 million ($133 million).
Business Division Performance
The global wealth management division’s adjusted operating profit before tax came in at CHF 1.08 billion ($1.10 billion), up 7% year over year. Higher net interest margins and elevated invested assets, along with loan growth, mainly aided revenues. Net new money outflow of CHF 1.2 billion ($1.2 billion) was recorded in the quarter.
The Asset Management unit’s adjusted operating profit dipped 5% year over year to CHF 126 million ($128 million) in the quarter, marred by lower performance fees.
The company’s Investment Bank unit’s adjusted operating profit before tax came in at CHF 605 million ($614 million), up 44% from the prior-year quarter. Higher equities revenues with growth in all product lines aided the results.
Personal & Corporate banking division’s adjusted operating profit before tax was flat year over year at CHF 378 million ($383.7 million). Higher transaction-based and recurring net fee income along with stable expenses offset interest rate headwinds. Notably, annualized net new business volume growth for personal banking was 3.9%.
Corporate Center reported adjusted operating loss before tax of CHF 385 million ($390.8 million) compared with a loss of CHF 269 million in the year-ago quarter.
Strong Capital Position
As of Jun 30, 2018, UBS Group's invested assets were CHF 3.24 trillion ($3.29 trillion), up 11.4% year over year. Total assets came in at CHF 944.5 billion ($958.6 billion), inching up around 6%.
UBS Group’s phase-in common equity tier (CET) 1 capital ratio was 13.4% as of Jun 30, 2018, compared with 13.5% as of Jun 30, 2017. Furthermore, phase-in CET 1 capital increased 6.1% year over year to CHF 33.8 billion ($34.3 billion) as of Jun 3, 2018. Fully applied risk-weighted assets climbed 6.6% to CHF 252.4 billion ($256.2 billion).
Outlook
Though geopolitical tensions persist, management believes global economic growth prospects will continue supporting markets.
The bank’s businesses in the third quarter are expected to be impacted by seasonality along with subdued market volatility leading to low client-activity levels.
Funding costs associated with long-term debt and capital instruments issued per regulatory requirements are projected to escalate in the third quarter on a year-over-year basis.
Notably, management expects gradual rise in U.S. dollar interest rates and an improved U.S. economy to aid net interest income. Additionally, continued momentum in businesses is estimated to report improved results in the third quarter, reflecting a diversified business model, and progress toward achievement of strategic and financial targets.
Our Take
Results highlight a decent quarter for UBS Group, with its major units displaying growth. We remain optimistic as the company managed to sustain profitability amid a number of headwinds encountered in the quarter. Though the bank remains focused on building its capital levels, escalating costs is a concern
UBS Group AG Price and Consensus
UBS Group AG Price and Consensus | UBS Group AG Quote
Currently, UBS Group carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other foreign banks, Deutsche Bank AG (DB - Free Report) will report June quarter-end results on Jul 25, Itau Unibanco Holding S.A. (ITUB - Free Report) on Jul 30 and Mitsubishi UFJ Financial Group, Inc. (MUFG - Free Report) on Aug 7.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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