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UBS' (UBS) Q1 Earnings Impress on Higher Operating Income

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UBS Group AG (UBS - Free Report) reported first-quarter 2022 net profit attributable to shareholders of $2.1 billion, up 17.1% from the prior-year quarter’s level.

UBS’ performance was driven by a 10% rise in net interest income (“NII”) compared with the prior-year quarter. Strong capital position was a tailwind.

Nonetheless, higher expenses and a 5% decrease in net fee and commission income year over year affected the results.

Performance of Investment Bank and Personal & Corporate Banking divisions were impressive in the quarter. However, lower profitability was recorded in the Global Wealth Management and Asset Management divisions.

Operating Income Climbs, Expenses Rise

UBS Group AG’s operating income increased 7.7% to $9.4 billion from the prior-year quarter’s level.

However, operating expenses increased 3.5% to $6.6 billion in the first quarter. This rise was largely as a result of an increase in personnel expenses, and also in general and administrative expenses.

Further, UBS Group AG reported total net credit loss expenses of $18 million in the quarter against the releases of $28 million witnessed in the year-ago quarter.

Business Divisions’ Performance

Global Wealth Management’s first-quarter operating profit before tax was $1.3 billion, down 7% year over year. The decline was due to higher operating expenses, partly offset by higher operating income

Asset Management’s operating profit of $174 million slumped 23% year over year, primarily due to lower performance fees. Also, invested assets decreased 4.7% sequentially to $1.15 trillion.

Personal & Corporate Banking reported an operating profit before tax of $428 million, up 10% year over year. The increase was driven by strong business momentum, with higher transaction-based fees, recurring net fees and NII.

The Investment Bank unit’s operating profit before tax was $929 million, up substantially from the prior-year quarter’s $412 million, primarily driven by higher operating income, but partly offset by higher operating expenses.

Group Functions incurred an operating loss before tax of $112 million in the reported quarter compared with the loss of $139 million witnessed in the year-ago quarter.

Strong Capital Position

As of Mar 31, 2022, UBS Group AG's invested assets declined 4.7% to $4.4 trillion from the prior quarter’s level. Risk-weighted assets increased 3.3% to $312 billion from the prior quarter’s level.

Nonetheless, total assets increased 2% to $1.14 trillion from the previous quarter’s level. Common Equity Tier 1 (CET1) capital increased 10.3% to $44.6 billion. UBS Group AG’s return on CET1 capital was 19% as of Mar 31, 2022, compared with 18.2% on Mar 31, 2021.

Capital Deployment Activities Encouraging

In the reported quarter, UBS returned $3.4 billion to its shareholders through share repurchases and dividends. The company repurchased $1.7 billion of common stock and paid the 2021 dividend of 5 cents per share, aggregating to $1.7 billion. Further, the company intends to repurchase a total of around $5 billion of common stock in 2022.

Our Take

UBS Group AG’s first-quarter performance seems impressive. It continues taking initiatives to digitalize its operations and serve clients better in the long run. UBS’s $1.4-billion deal to acquire Wealthfront will accelerate its growth in the United States by strengthening its outreach among affluent investors and bolstering distribution competencies. However, prevalent negative interest rates in Switzerland act as a key headwind.

UBS Group AG Price, Consensus and EPS Surprise

UBS Group AG Price, Consensus and EPS Surprise

UBS Group AG price-consensus-eps-surprise-chart | UBS Group AG Quote

Currently, UBS Group AG carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

First Horizon National Corporation’s (FHN - Free Report) first-quarter 2022 adjusted earnings per share of 38 cents beat the Zacks Consensus Estimate of 34 cents. However, the figure declined 25% year over year. Results excluded after-tax impacts of 4 cents per share from notable items related to the IBERIABANK Corporation and TD-Bank merger transactions.

First Horizon’s results reflect higher loan balance, provision benefits and declining expenses. However, declines in NII and fee income affected revenues. Also, pressure on margin due to low interest rates was a spoilsport for FHN.

M&T Bank Corporation (MTB - Free Report) reported net operating earnings per share of $2.73 in first-quarter 2022, surpassing the Zacks Consensus Estimate of $2.26. However, MTB’s bottom line compares unfavorably with $3.41 per share reported in the year-ago period.

A rise in non-interest income and a strong capital position were tailwinds for M&T Bank. However, a fall in NII, net interest margin, and a rise in expenses were the key undermining factors.

Fifth Third Bancorp (FITB - Free Report) reported first-quarter 2022 earnings (excluding after-tax impacts of certain items) of 69 cents per share, missing the Zacks Consensus Estimate of 70 cents. Including the impacts of these items, earnings per share were 68 cents, indicating a 27% year-over-year decline.

Fifth Third’s performance displays a revenue decline primarily due to a fall in the fee income. Margin contraction and capital position deterioration played spoilsports for FITB.