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UBS (UBS) Up 2.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for UBS (UBS - Free Report) . Shares have added about 2.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is UBS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

UBS Group Q1 Earnings Rise Y/Y, Revenues & Costs Up

UBS Group reported first-quarter 2021 net profit attributable to shareholders of $1.82 billion, up 14% from $1.60 million in the prior-year quarter.

The company’s performance was supported by 13% rise in net fee and commission income year over year along with 21% rise in net interest income. Also, credit costs release acted as a tailwind. However, rise in expenses was an undermining factor.

Performance of almost all the segments of UBS Group was impressive during the quarter. It recorded higher profitability in Asset Management, Global wealth management and Personal & Corporate banking units. However, Investment Bank unit recorded a fall in profits.

Operating Income Climbs, Expenses Jump

UBS Group’s operating income increased 10% to $8.71 billion from the prior-year quarter.

Operating expenses climbed 8% to $6.41 billion in the first quarter. The rise was due to higher personal expenses.

The company reported net credit loss releases of $28 million in the quarter against expense of $268 million in the year-ago quarter.

Business Division Performance

Global wealth management’s operating profit before tax was $1.41 billion, up 16% year over year. Higher transaction-based and recurring net fee income supported results.

Asset Management’s operating profit of $227 million jumped 45% year over year, mostly driven by increase in performance fees backed by rise in Hedge Fund Businesses and net management fees growth. Also, invested assets jumped 3% to $1.12 trillion.    

Personal & Corporate banking reported operating profit before tax of $358 million, up 11% year over year. Higher fee income was partly offset by rise in expenses. Annualized net new business volume growth for personal banking was decent at 7.6%.

Investment Bank unit’s operating profit before tax was $412 million, down 42% from the prior-year quarter. Lower revenues from Global Markets and higher expenses led to this downside. Notably, the results included a $774 million loss related to a default by a U.S.-based client of the company’s prime brokerage business.

Group Functions incurred operating loss before tax of $139 million in the quarter compared with a loss of $410 million in year-ago quarter.

Strong Capital Position

As of Mar 31, 2021, UBS Group's invested assets were $4.31 trillion, up 2.8% sequentially. Total assets decreased 1.6% to $1.11 trillion from previous quarter.

The company’s phase-in common equity tier (CET) 1 ratio was 14% as of Mar 31, 2021, compared with 12.8% on Mar 31, 2020. Phase-in CET 1 capital increased 10.3% to $40.4 billion. Fully applied risk-weighted assets increased marginally to $287.8 billion from the year-ago quarter.

Outlook

The company expects revenues in the second quarter of 2021 to be positively influenced by seasonal factors such as higher client activity, when compared with first-quarter 2021. Higher asset prices are likely to have a positive effect on recurring fee income in its asset gathering businesses.

Changes in methodology, model updates and regulatory add-ons are expected to increase credit and counterparty credit risk RWA by around $3 billion in the second quarter of 2021.

Tax rate is expected to be about 25% in the remaining nine months of 2021. The expectation excludes any potential impacts from the reassessment of deferred tax assets in connection with business planning process and any potential changes in U.S. corporate or other jurisdictional statutory tax rates that could be enacted during the year.   

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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