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UBS Group (UBS) Q2 Earnings Down Y/Y; Expenses Decline
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UBS Group AG (UBS - Free Report) reported second-quarter 2016 net profit attributable to shareholders of CHF 1.03 billion ($1.06 million), down 14% year over year. The results were impacted by a 22% year-over-year decrease in net interest income and a 7% drop in net fee and commission income, partially offset by a 15% increase in net trading income
The reported quarter recorded several significant items including a gain of CHF 123 million on the sale of its investment in Visa Europe, CHF 120 million gains on sales of real estate in Switzerland, and net restructuring expenses of CHF 377 million.
The Swiss banking giant‘s results were impacted by reduced profitability in its Investment Bank and Wealth Management units. However, the quarter saw improved profitability in the Wealth Management Americas, Personal & Corporate banking and Asset Management wings.
Lower Expenses Lent Support
Excluding the significant items, UBS Group AG’s adjusted operating income increased 3.7% from the prior-year quarter to CHF 7.21 billion ($7.43 billion).
Adjusted operating expenses decreased 5.4% year over year to CHF 5.54 billion ($5.70 billion). Expenses included provisions for litigation, regulatory and similar matters of CHF 72 million ($74.2 million ), relatively stable year over year. Notably, as of Jun 2016, UBS Group AG achieved net cost savings of CHF 1.4 billion and remains on track to achieve CHF 2.1 billion in net cost reductions by the end of 2017.
UBS Group AG’s pre-tax operating profit on an adjusted basis came in at CHF 1.67 billion ($1.72 billion) in the quarter, up 2.3% from the prior-year quarter.
Business Division Performance
Wealth Management Americas division’s adjusted operating profit before tax increased 27.9% from the prior-year quarter to CHF 275 million ($283.3 million). Notably, net new money growth in the quarter was 0.9%, compared with negative 0.3% in the prior-year quarter.
Personal & Corporate banking division’s adjusted operating profit before tax was up 11.8% year over year to CHF 463 million ($476.9 million). Additionally, the Asset Management unit’s adjusted operating profit improved 10.4% year over year to CHF148 million ($152.4 million) in the quarter.
However , the company’s Investment Bank unit’s adjusted operating profit before tax came in at CHF 447 million ($460.4 million), down 27.6% from the prior-year quarter. The decline was mainly due to lower revenues in Equities business and in Corporate Client Solutions. Notably, driven the Brexit volatility at the close of the second quarter, UBS Group witnessed higher revenues from foreign exchange, rates and credit, on a year-over-year basis.
Also, the Wealth Management division’s adjusted operating profit before tax declined nearly 21.2% year over year to CHF 606 million ($624.2million) in the quarter. However driven by strong net inflows from Asia Pacific and Switzerland, the unit saw net new money growth of 2.6% in the quarter, up from 0.7% in the prior-year quarter.
Corporate Center reported adjusted operating loss before tax of CHF 198 million ($203.9 million) compared with a loss of CHF 266 million in the prior-year quarter.
Capital Position
As of Jun 30, 2016, UBS AG's invested assets were CHF 2.68 trillion ($2.74 trillion), up 1.9% year over year. Total assets stood at CHF 989.4 billion ($1.01 trillion), increasing 4% year over year.
UBS Group’s phase-in BIS Basel III common equity tier (CET) 1 ratio was 14.2% as of Jun 30, 2016, compared with 14.4% in the prior-year quarter. Further, phase-in BIS Basel III CET 1 capital decreased 4.2% year over year to CHF 37.06 billion ($37.9 billion) as of Jun 30, 2016. Fully applied risk-weighted assets increased 1.9% year over year to CHF 213.84 billion ($221.3 billion).
Outlook
Management warned that the persistent market volatility and underlying macroeconomic uncertainties, aggravated by Brexit vote, will result in continued client risk aversion and low transaction volumes and that the current scenario is unlikely to change in the near term. Notably, considering the current scenario, the company removed short term targets for annual adjusted return on tangible equity (RoTE) and adjusted cost to income ratio. However UBS reaffirmed its targeted adjusted RoTE of over 15% and targeted adjusted cost to income ratio of 60–70% to be achieved in a ‘normalized environment.’
The company also highlighted several concerns including headwinds from negative interest rates, and the strengthening of Swiss franc, particularly against euro. Further, the proposed changes to Swiss bank capital standards and global regulatory framework in Switzerland, will lead to higher capital requirements and costs. However, amid a challenging operating environment, the company remains committed to the execution of its strategies.
Our Take
Results do not reflect a strong quarter for UBS Group as its major units failed to exhibit growth, but we remain optimistic as the company managed to sustain profitability amid a number of headwinds witnessed in the quarter. UBS Group remains focused on building its capital levels. Restructuring initiatives including cost control are encouraging. However, the stressed operating environment remains a concern.
UBS Group currently carries a Zacks Rank #5 (Strong Sell).
Among other foreign banks, Deutsche Bank AG (DB - Free Report) reported net income of €20 million ($22.6 million) in the second quarter of 2016, significantly down on a year-over-year basis. Income before income taxes came in at €408 million ($460.7 million), down 66.8% year over year. Lower revenues and higher provisions negatively impacted the results. However, the reduction in non-interest expenses was a positive factor.
HSBC Holdings plc (HSBC - Free Report) and Mitsubishi UFJ Financial Group, Inc. are expected to report results on Aug 3 and Aug 16, respectively.
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UBS Group (UBS) Q2 Earnings Down Y/Y; Expenses Decline
UBS Group AG (UBS - Free Report) reported second-quarter 2016 net profit attributable to shareholders of CHF 1.03 billion ($1.06 million), down 14% year over year. The results were impacted by a 22% year-over-year decrease in net interest income and a 7% drop in net fee and commission income, partially offset by a 15% increase in net trading income
The reported quarter recorded several significant items including a gain of CHF 123 million on the sale of its investment in Visa Europe, CHF 120 million gains on sales of real estate in Switzerland, and net restructuring expenses of CHF 377 million.
The Swiss banking giant‘s results were impacted by reduced profitability in its Investment Bank and Wealth Management units. However, the quarter saw improved profitability in the Wealth Management Americas, Personal & Corporate banking and Asset Management wings.
Lower Expenses Lent Support
Excluding the significant items, UBS Group AG’s adjusted operating income increased 3.7% from the prior-year quarter to CHF 7.21 billion ($7.43 billion).
Adjusted operating expenses decreased 5.4% year over year to CHF 5.54 billion ($5.70 billion). Expenses included provisions for litigation, regulatory and similar matters of CHF 72 million ($74.2 million ), relatively stable year over year. Notably, as of Jun 2016, UBS Group AG achieved net cost savings of CHF 1.4 billion and remains on track to achieve CHF 2.1 billion in net cost reductions by the end of 2017.
UBS Group AG’s pre-tax operating profit on an adjusted basis came in at CHF 1.67 billion ($1.72 billion) in the quarter, up 2.3% from the prior-year quarter.
Business Division Performance
Wealth Management Americas division’s adjusted operating profit before tax increased 27.9% from the prior-year quarter to CHF 275 million ($283.3 million). Notably, net new money growth in the quarter was 0.9%, compared with negative 0.3% in the prior-year quarter.
Personal & Corporate banking division’s adjusted operating profit before tax was up 11.8% year over year to CHF 463 million ($476.9 million). Additionally, the Asset Management unit’s adjusted operating profit improved 10.4% year over year to CHF148 million ($152.4 million) in the quarter.
However , the company’s Investment Bank unit’s adjusted operating profit before tax came in at CHF 447 million ($460.4 million), down 27.6% from the prior-year quarter. The decline was mainly due to lower revenues in Equities business and in Corporate Client Solutions. Notably, driven the Brexit volatility at the close of the second quarter, UBS Group witnessed higher revenues from foreign exchange, rates and credit, on a year-over-year basis.
Also, the Wealth Management division’s adjusted operating profit before tax declined nearly 21.2% year over year to CHF 606 million ($624.2million) in the quarter. However driven by strong net inflows from Asia Pacific and Switzerland, the unit saw net new money growth of 2.6% in the quarter, up from 0.7% in the prior-year quarter.
Corporate Center reported adjusted operating loss before tax of CHF 198 million ($203.9 million) compared with a loss of CHF 266 million in the prior-year quarter.
Capital Position
As of Jun 30, 2016, UBS AG's invested assets were CHF 2.68 trillion ($2.74 trillion), up 1.9% year over year. Total assets stood at CHF 989.4 billion ($1.01 trillion), increasing 4% year over year.
UBS Group’s phase-in BIS Basel III common equity tier (CET) 1 ratio was 14.2% as of Jun 30, 2016, compared with 14.4% in the prior-year quarter. Further, phase-in BIS Basel III CET 1 capital decreased 4.2% year over year to CHF 37.06 billion ($37.9 billion) as of Jun 30, 2016. Fully applied risk-weighted assets increased 1.9% year over year to CHF 213.84 billion ($221.3 billion).
Outlook
Management warned that the persistent market volatility and underlying macroeconomic uncertainties, aggravated by Brexit vote, will result in continued client risk aversion and low transaction volumes and that the current scenario is unlikely to change in the near term. Notably, considering the current scenario, the company removed short term targets for annual adjusted return on tangible equity (RoTE) and adjusted cost to income ratio. However UBS reaffirmed its targeted adjusted RoTE of over 15% and targeted adjusted cost to income ratio of 60–70% to be achieved in a ‘normalized environment.’
The company also highlighted several concerns including headwinds from negative interest rates, and the strengthening of Swiss franc, particularly against euro. Further, the proposed changes to Swiss bank capital standards and global regulatory framework in Switzerland, will lead to higher capital requirements and costs. However, amid a challenging operating environment, the company remains committed to the execution of its strategies.
Our Take
Results do not reflect a strong quarter for UBS Group as its major units failed to exhibit growth, but we remain optimistic as the company managed to sustain profitability amid a number of headwinds witnessed in the quarter. UBS Group remains focused on building its capital levels. Restructuring initiatives including cost control are encouraging. However, the stressed operating environment remains a concern.
UBS Group currently carries a Zacks Rank #5 (Strong Sell).
Among other foreign banks, Deutsche Bank AG (DB - Free Report) reported net income of €20 million ($22.6 million) in the second quarter of 2016, significantly down on a year-over-year basis. Income before income taxes came in at €408 million ($460.7 million), down 66.8% year over year. Lower revenues and higher provisions negatively impacted the results. However, the reduction in non-interest expenses was a positive factor.
HSBC Holdings plc (HSBC - Free Report) and Mitsubishi UFJ Financial Group, Inc. are expected to report results on Aug 3 and Aug 16, respectively.
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