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UBS (UBS) Down 4.5% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for UBS (UBS - Free Report) . Shares have lost about 4.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is UBS due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
UBS Group’s Q4 Earnings Impress on Lower Expenses
UBS Group AG reported fourth-quarter 2018 net profit attributable to shareholders of $696 million against loss of $2.4 billion in the prior-year quarter.
Notably, the company’s performance in the quarter reflects lower expenses. However, results were affected by fall in net fee and commission income (down 2.1% year over year) and lower net interest income (down 13%).
For full-year 2018, the company reported net profit attributable to shareholders of $4.9 billion, up 25% on an adjusted basis.
The company recorded improved profitability in Asset Management unit on an adjusted basis. However, performance of the Personal & Corporate banking, Corporate Center, Global wealth management and Investment Bank units was disappointing in the quarter.
Operating Income Up, Expenses Drop
Excluding the significant items, UBS Group’s adjusted operating income increased 3.5% to $6.8 billion from the prior-year quarter.
Adjusted operating expenses edged down slightly year over year to $5.9 billion in the fourth quarter. Expenses included provisions for litigation, regulatory and similar matters of $151 million.
Business Division Performance
The Global wealth management division’s adjusted operating profit before tax came in at $769 million, down 22% year over year. Lower transaction-based revenues due to fall in client activity were partially offset by higher net interest margins and income along with loan growth. Net new money outflows were $7.9 billion in the fourth quarter.
The Asset Management unit’s adjusted operating profit rose 15% year over year to $134 million in the quarter under review, supported by higher performance fees along with reduced personnel costs.
Personal & Corporate banking division’s adjusted operating profit before tax was down 13% year over year to $375 million. Lower transaction-based income, together with higher credit loss expenses, resulted in the decline. Notably, annualized net new business volume growth for personal banking was 2.2%.
The company’s Investment Bank unit’s adjusted operating profit before tax came in at $26 million, down 84% from the prior-year quarter. Challenging market conditions affected both Equities and Corporate Client Solutions revenues. Notably, decline in expenses was a positive factor.
Corporate Center reported adjusted operating loss before tax of $443 million in the fourth quarter.
Strong Capital Position
As of Dec 31, 2018, UBS Group's invested assets were $3.10 trillion, down 4.9% year over year. Total assets came in at $958.5 billion, climbing around 2%.
UBS Group’s phase-in common equity tier (CET) 1 ratio was 13.1% as of Dec 31, 2018, compared with 13.8% on Dec 31, 2017. Furthermore, phase-in CET 1 capital increased 2.9% year over year to $34.5 billion) as of Dec 31, 2018. Fully applied risk-weighted assets climbed 8.3% to $263.7 billion).
Outlook
As geopolitical tensions, rising protectionism and trade disputes persist, management expects these factors to affect investor sentiment and confidence and thus, client activity in first-quarter 2019.
Also, lower invested assets as a result of market declines in the fourth quarter are expected to affect recurring revenues in Global Wealth Management and Asset Management.
Effective tax rate of about 25% is expected for 2019.
Financial Targets (2019-2021)
For the Group, UBS targets return on CET1 capital of nearly 15% in 2019 and adjusted cost to income ratio of 72% by 2021.
Notably, the company plans to return CHF 2 billion to shareholders through a share buyback plan..
Business Divisions’ Outlook
Global Wealth Management: Net new money growth is expected in the range of 2-4% and adjusted Cost/Income Ratio of 75% and 70% in 2019 and 2021, respectively. Also, adjusted profit before tax is expected to grow 10-15%.
Personal & Corporate Banking: Adjusted pre-tax profit growth is expected in the range of 3-5%, net interest margin of 145-155 basis points and adjusted Cost/Income Ratio of 59% and 56% in 2019 and 2021, respectively.
Asset Management: Net new money growth excluding money market flows is expected in the range of 3-5% and adjusted Cost/Income Ratio is expected to be 72% and 68% in 2019 and 2021, respectively. Further, adjusted profit before tax is expected to grow about 10% in the medium term.
Investment Bank: Annual pre-tax return on attributed equity is expected to be greater than 15%. Adjusted Cost/Income ratio is expected to be 78% and 75% in 2019 and 2021,
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.
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UBS (UBS) Down 4.5% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for UBS (UBS - Free Report) . Shares have lost about 4.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is UBS due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
UBS Group’s Q4 Earnings Impress on Lower Expenses
UBS Group AG reported fourth-quarter 2018 net profit attributable to shareholders of $696 million against loss of $2.4 billion in the prior-year quarter.
Notably, the company’s performance in the quarter reflects lower expenses. However, results were affected by fall in net fee and commission income (down 2.1% year over year) and lower net interest income (down 13%).
For full-year 2018, the company reported net profit attributable to shareholders of $4.9 billion, up 25% on an adjusted basis.
The company recorded improved profitability in Asset Management unit on an adjusted basis. However, performance of the Personal & Corporate banking, Corporate Center, Global wealth management and Investment Bank units was disappointing in the quarter.
Operating Income Up, Expenses Drop
Excluding the significant items, UBS Group’s adjusted operating income increased 3.5% to $6.8 billion from the prior-year quarter.
Adjusted operating expenses edged down slightly year over year to $5.9 billion in the fourth quarter. Expenses included provisions for litigation, regulatory and similar matters of $151 million.
Business Division Performance
The Global wealth management division’s adjusted operating profit before tax came in at $769 million, down 22% year over year. Lower transaction-based revenues due to fall in client activity were partially offset by higher net interest margins and income along with loan growth. Net new money outflows were $7.9 billion in the fourth quarter.
The Asset Management unit’s adjusted operating profit rose 15% year over year to $134 million in the quarter under review, supported by higher performance fees along with reduced personnel costs.
Personal & Corporate banking division’s adjusted operating profit before tax was down 13% year over year to $375 million. Lower transaction-based income, together with higher credit loss expenses, resulted in the decline. Notably, annualized net new business volume growth for personal banking was 2.2%.
The company’s Investment Bank unit’s adjusted operating profit before tax came in at $26 million, down 84% from the prior-year quarter. Challenging market conditions affected both Equities and Corporate Client Solutions revenues. Notably, decline in expenses was a positive factor.
Corporate Center reported adjusted operating loss before tax of $443 million in the fourth quarter.
Strong Capital Position
As of Dec 31, 2018, UBS Group's invested assets were $3.10 trillion, down 4.9% year over year. Total assets came in at $958.5 billion, climbing around 2%.
UBS Group’s phase-in common equity tier (CET) 1 ratio was 13.1% as of Dec 31, 2018, compared with 13.8% on Dec 31, 2017. Furthermore, phase-in CET 1 capital increased 2.9% year over year to $34.5 billion) as of Dec 31, 2018. Fully applied risk-weighted assets climbed 8.3% to $263.7 billion).
Outlook
As geopolitical tensions, rising protectionism and trade disputes persist, management expects these factors to affect investor sentiment and confidence and thus, client activity in first-quarter 2019.
Also, lower invested assets as a result of market declines in the fourth quarter are expected to affect recurring revenues in Global Wealth Management and Asset Management.
Effective tax rate of about 25% is expected for 2019.
Financial Targets (2019-2021)
For the Group, UBS targets return on CET1 capital of nearly 15% in 2019 and adjusted cost to income ratio of 72% by 2021.
Notably, the company plans to return CHF 2 billion to shareholders through a share buyback plan..
Business Divisions’ Outlook
Global Wealth Management: Net new money growth is expected in the range of 2-4% and adjusted Cost/Income Ratio of 75% and 70% in 2019 and 2021, respectively. Also, adjusted profit before tax is expected to grow 10-15%.
Personal & Corporate Banking: Adjusted pre-tax profit growth is expected in the range of 3-5%, net interest margin of 145-155 basis points and adjusted Cost/Income Ratio of 59% and 56% in 2019 and 2021, respectively.
Asset Management: Net new money growth excluding money market flows is expected in the range of 3-5% and adjusted Cost/Income Ratio is expected to be 72% and 68% in 2019 and 2021, respectively. Further, adjusted profit before tax is expected to grow about 10% in the medium term.
Investment Bank: Annual pre-tax return on attributed equity is expected to be greater than 15%. Adjusted Cost/Income ratio is expected to be 78% and 75% in 2019 and 2021,
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.