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UBS Group (UBS) Q2 Earnings Decline Y/Y, Expenses Increase
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UBS Group AG (UBS - Free Report) reported second-quarter 2020 net profit attributable to shareholders of $1.23 billion, down 11% from $1.39 billion in the prior-year quarter.
The company’s performance was impacted by a decline in net fee and commission income (down 4% year over year) along with a rise in expenses. However, higher net interest income (up 36%) was a tailwind.
It recorded higher profitability in Asset Management, Global wealth management and Investment Bank units. However, the performance of the Personal & Corporate banking unit was disappointing.
Operating Income Climbs, Expenses Rise
UBS Group’s operating income decreased 2% to $7.4 billion from the prior-year quarter.
Operating expenses rose 1% to $5.82 billion in the second quarter. Expenses included provisions for litigation, regulatory and similar matters of $2 million.
The company reported credit loss expenses of $272 million in the second quarter, up substantially from $12 million in the year-ago quarter.
Business Division Performance
Global wealth management’s operating profit before tax was $880 million, up nearly 1% year over year. Higher transaction-based income along with rise in net interest income supported results. Net new money inflows were $9.2 billion.
Asset Management’s operating profit rose 27% year over year to $157 million, supported by a substantial rise in performance fees. Also, invested assets climbed 12% to $928 billion.
Personal & Corporate banking reported operating profit before tax of $229 million, down 41% year over year. Higher credit loss expenses and lower income, were partly offset by lower operating expenses. Annualized net new business volume growth for personal banking was strong at 9.2%.
Investment Bank unit’s operating profit before tax was $612 million, up 43% from $427 million in the prior-year quarter. Higher volumes and volatility, particularly in Foreign Exchange, Rates and Cash Equities revenues, aided bottom-line growth. Rise in expenses was a headwind.
Group Functions incurred operating loss before tax of $305 million in the quarter, which included about $90 million in costs related to higher liquidity in relation to the COVID-19 outbreak-led market stress.
Strong Capital Position
As of Jun 30, 2020, UBS Group's invested assets were $3.59 trillion, up 10.9% sequentially. Total assets decreased 3.1% to $1.06 trillion from previous quarter.
The company’s phase-in common equity tier (CET) 1 ratio was 13.3% as of Jun 30, 2020, compared with 13.7% on Jun 30, 2019. Phase-in CET 1 capital increased 7.2% year over year to $38.1 billion. Fully applied risk-weighted assets increased 10.5% to $286.4 billion from the year-ago quarter.
Outlook
The company expects credit loss expenses to remain elevated in the second half of 2020. Also, it is of opinion that higher market levels at the start of the quarter might benefit recurring fee income.
UBS Group is taking action to improve net interest income, including loan growth, which is likely to partly offset higher liquidity costs incurred to respond to the current environment, in addition to US dollar interest rate headwinds. Further, the pandemic along with seasonality may have an impact on client activity levels in the near term.
Our Take
The company’s second-quarter results seem decent. Its restructuring initiatives to free resources are expected to improve its operating efficiency in the quarters ahead. However, the negative interest rate environment and global concerns posed as key headwinds.
Among other foreign banks, Barclays (BCS - Free Report) will report results on Aug 6. Itau Unibanco Holding S.A. (ITUB - Free Report) is scheduled to report on Aug 3 and Mitsubishi UFJ Financial Group (MUFG - Free Report) will report on Jul 29.
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UBS Group (UBS) Q2 Earnings Decline Y/Y, Expenses Increase
UBS Group AG (UBS - Free Report) reported second-quarter 2020 net profit attributable to shareholders of $1.23 billion, down 11% from $1.39 billion in the prior-year quarter.
The company’s performance was impacted by a decline in net fee and commission income (down 4% year over year) along with a rise in expenses. However, higher net interest income (up 36%) was a tailwind.
It recorded higher profitability in Asset Management, Global wealth management and Investment Bank units. However, the performance of the Personal & Corporate banking unit was disappointing.
Operating Income Climbs, Expenses Rise
UBS Group’s operating income decreased 2% to $7.4 billion from the prior-year quarter.
Operating expenses rose 1% to $5.82 billion in the second quarter. Expenses included provisions for litigation, regulatory and similar matters of $2 million.
The company reported credit loss expenses of $272 million in the second quarter, up substantially from $12 million in the year-ago quarter.
Business Division Performance
Global wealth management’s operating profit before tax was $880 million, up nearly 1% year over year. Higher transaction-based income along with rise in net interest income supported results. Net new money inflows were $9.2 billion.
Asset Management’s operating profit rose 27% year over year to $157 million, supported by a substantial rise in performance fees. Also, invested assets climbed 12% to $928 billion.
Personal & Corporate banking reported operating profit before tax of $229 million, down 41% year over year. Higher credit loss expenses and lower income, were partly offset by lower operating expenses. Annualized net new business volume growth for personal banking was strong at 9.2%.
Investment Bank unit’s operating profit before tax was $612 million, up 43% from $427 million in the prior-year quarter. Higher volumes and volatility, particularly in Foreign Exchange, Rates and Cash Equities revenues, aided bottom-line growth. Rise in expenses was a headwind.
Group Functions incurred operating loss before tax of $305 million in the quarter, which included about $90 million in costs related to higher liquidity in relation to the COVID-19 outbreak-led market stress.
Strong Capital Position
As of Jun 30, 2020, UBS Group's invested assets were $3.59 trillion, up 10.9% sequentially. Total assets decreased 3.1% to $1.06 trillion from previous quarter.
The company’s phase-in common equity tier (CET) 1 ratio was 13.3% as of Jun 30, 2020, compared with 13.7% on Jun 30, 2019. Phase-in CET 1 capital increased 7.2% year over year to $38.1 billion. Fully applied risk-weighted assets increased 10.5% to $286.4 billion from the year-ago quarter.
Outlook
The company expects credit loss expenses to remain elevated in the second half of 2020. Also, it is of opinion that higher market levels at the start of the quarter might benefit recurring fee income.
UBS Group is taking action to improve net interest income, including loan growth, which is likely to partly offset higher liquidity costs incurred to respond to the current environment, in addition to US dollar interest rate headwinds. Further, the pandemic along with seasonality may have an impact on client activity levels in the near term.
Our Take
The company’s second-quarter results seem decent. Its restructuring initiatives to free resources are expected to improve its operating efficiency in the quarters ahead. However, the negative interest rate environment and global concerns posed as key headwinds.
UBS Group AG Price and Consensus
UBS Group AG price-consensus-chart | UBS Group AG Quote
Currently, UBS Group sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Among other foreign banks, Barclays (BCS - Free Report) will report results on Aug 6. Itau Unibanco Holding S.A. (ITUB - Free Report) is scheduled to report on Aug 3 and Mitsubishi UFJ Financial Group (MUFG - Free Report) will report on Jul 29.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>