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UBS Group's (UBS) Q3 Earnings Increase, Operating Costs Down
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UBS Group AG (UBS - Free Report) reported third-quarter 2017 pre-tax operating profit of CHF 1.51 billion ($1.56 billion) on an adjusted basis, up around 16% from the prior-year quarter.
Results displayed increase in operating income on the back of higher net fee and commission income (up 5% year over year), partially offset by lower net interest income (down 2%) along with lower trading income (down 1%) and other income (down 40%). Notably, the quarter benefited from the company’s consistent focus on expense management.
Further, the Swiss banking giant’s net profit attributable to shareholders was CHF 946 million ($983 million), up 14% year over year. Results included net restructuring expenses of CHF 285 million.
The company recorded improved profitability in Global Wealth Management, Asset Management, Investment Bank and Wealth Management units. However, performance of Wealth Management Americas and Personal & Corporate banking units was disappointing.
Costs Decline, Operating Income Increases
Excluding the significant items, UBS Group AG’s adjusted operating income increased 2% from the prior-year quarter to CHF 7.15 billion ($5.86 billion).
Adjusted operating expenses were down 1.2% from the prior-year quarter to CHF 5.64 billion ($5.86 billion). Expenses included provisions for litigation, regulatory and similar matters of CHF 197 million ($205 million), slumping 53% year over year.
Business Division Performance
Global Wealth Management division’s adjusted operating profit before tax came in at CHF 1.04 billion ($1.08 billion), up 4% year over year. Higher U.S. dollar interest rate, elevated invested assets and loan growth were the positives. Net new money came in at CHF 2.4 billion in the quarter.
The Wealth Management division’s adjusted operating profit before tax jumped 9% year over year to CHF 701 million ($728 million) in the quarter. Increase in all revenue components and prudent cost control mainly led to the upsurge. Notably, net new money remained strong during the quarter.
Wealth Management Americas division’s adjusted operating profit before tax declined 5.3% from the prior-year quarter to CHF 339 million ($352 million). Notably, net new money was a negative during the quarter.
The Asset Management unit’s adjusted operating profit rose 10.9% year over year to CHF 153 million ($159 million) in the quarter, supported by higher net management fees along with lower operating expenses.
The company’s Investment Bank unit’s adjusted operating profit before tax came in at CHF 352 million ($366 million), up 2.9% from the prior-year quarter. Increased revenues in equity derivatives were partially offset by low volatility and reduced client activity levels.
Personal & Corporate banking division’s adjusted operating profit before tax was down 7.8% year over year to CHF 436 million ($453 million). Lower net interest income and higher costs were recorded, partially offset by elevated transaction-based and recurring net fee income. Notably, annualized net new business volume growth for personal banking was 3.7%.
Corporate Center reported adjusted operating loss before tax of CHF 392 million ($407 million) compared with a loss of CHF 214 million incurred in the year-ago quarter.
Capital Position
As of Sep 30, 2017, UBS Group’s invested assets were CHF 3.07 trillion ($3.15 trillion), up 11.6% year over year. Total assets came in at CHF 913.6 billion ($938 billion), falling around 2.3% year over year.
UBS Group’s phase-in common equity tier (CET) 1 ratio was 15.1% as of Sep 30, 2017, compared with 16.9% in the prior-year quarter. Further, fully applied risk-weighted assets increased 9.7% year over year to CHF 237.9 billion ($244.2 billion). Phase-in CET 1 capital fell 5.1% year over year to CHF 36 billion ($37 billion) as of Sep 30, 2017.
Outlook
Wealth management client activity levels have improved on optimism among investors. However, management remains concerned about geo-political tensions and underlying macroeconomic uncertainties, which have been contributing to client risk aversion and low-transaction volumes. Though investors’ sentiments have improved, a sustained increase in client activity levels is not visible.
The company also highlighted several concerns, including headwinds from negative interest rates, though partially mitigated by the favorable impact of increasing U.S. dollar interest rates and normalization of monetary policy. Further, the proposed changes to the Swiss bank capital standards and global regulatory framework in Switzerland, will lead to higher capital requirements and expenses. However, amid a challenging operating environment, the company remains committed to the execution of its strategies.
Our Take
Results highlight a decent quarter for UBS Group with its major units displaying growth, though the Wealth Management Americas unit disappointed. Pressure on net interest income due to low rates remains a concern. Though UBS Group has been successful in trimming costs this quarter, its exposure to legal matters is likely to keep costs elevated in the near term.
Currently, UBS Group AG carries a Zacks Rank #5 (Strong Sell).
Deutsche Bank AG (DB - Free Report) reported net income of €649 million ($762.6 million) in third-quarter 2017, significantly up on a year-over-year basis. Income before income taxes grew 50.7% year over year to €933 million ($1.1 billion).
Barclays PLC’s (BCS - Free Report) third-quarter 2017 net income attributable to ordinary equity holders was £583 million ($763.1 million), reflecting a significant improvement from £190 million in the prior-year quarter.
The Bank of Nova Scotia (BNS - Free Report) reported third-quarter fiscal 2017 (ended Jul 31) results before the opening bell. Net income for the quarter came in at C$2.1 billion ($1.59 billion), jumping 7.1% year over year.
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UBS Group's (UBS) Q3 Earnings Increase, Operating Costs Down
UBS Group AG (UBS - Free Report) reported third-quarter 2017 pre-tax operating profit of CHF 1.51 billion ($1.56 billion) on an adjusted basis, up around 16% from the prior-year quarter.
Results displayed increase in operating income on the back of higher net fee and commission income (up 5% year over year), partially offset by lower net interest income (down 2%) along with lower trading income (down 1%) and other income (down 40%). Notably, the quarter benefited from the company’s consistent focus on expense management.
Further, the Swiss banking giant’s net profit attributable to shareholders was CHF 946 million ($983 million), up 14% year over year. Results included net restructuring expenses of CHF 285 million.
The company recorded improved profitability in Global Wealth Management, Asset Management, Investment Bank and Wealth Management units. However, performance of Wealth Management Americas and Personal & Corporate banking units was disappointing.
Costs Decline, Operating Income Increases
Excluding the significant items, UBS Group AG’s adjusted operating income increased 2% from the prior-year quarter to CHF 7.15 billion ($5.86 billion).
Adjusted operating expenses were down 1.2% from the prior-year quarter to CHF 5.64 billion ($5.86 billion). Expenses included provisions for litigation, regulatory and similar matters of CHF 197 million ($205 million), slumping 53% year over year.
Business Division Performance
Global Wealth Management division’s adjusted operating profit before tax came in at CHF 1.04 billion ($1.08 billion), up 4% year over year. Higher U.S. dollar interest rate, elevated invested assets and loan growth were the positives. Net new money came in at CHF 2.4 billion in the quarter.
The Wealth Management division’s adjusted operating profit before tax jumped 9% year over year to CHF 701 million ($728 million) in the quarter. Increase in all revenue components and prudent cost control mainly led to the upsurge. Notably, net new money remained strong during the quarter.
Wealth Management Americas division’s adjusted operating profit before tax declined 5.3% from the prior-year quarter to CHF 339 million ($352 million). Notably, net new money was a negative during the quarter.
The Asset Management unit’s adjusted operating profit rose 10.9% year over year to CHF 153 million ($159 million) in the quarter, supported by higher net management fees along with lower operating expenses.
The company’s Investment Bank unit’s adjusted operating profit before tax came in at CHF 352 million ($366 million), up 2.9% from the prior-year quarter. Increased revenues in equity derivatives were partially offset by low volatility and reduced client activity levels.
Personal & Corporate banking division’s adjusted operating profit before tax was down 7.8% year over year to CHF 436 million ($453 million). Lower net interest income and higher costs were recorded, partially offset by elevated transaction-based and recurring net fee income. Notably, annualized net new business volume growth for personal banking was 3.7%.
Corporate Center reported adjusted operating loss before tax of CHF 392 million ($407 million) compared with a loss of CHF 214 million incurred in the year-ago quarter.
Capital Position
As of Sep 30, 2017, UBS Group’s invested assets were CHF 3.07 trillion ($3.15 trillion), up 11.6% year over year. Total assets came in at CHF 913.6 billion ($938 billion), falling around 2.3% year over year.
UBS Group’s phase-in common equity tier (CET) 1 ratio was 15.1% as of Sep 30, 2017, compared with 16.9% in the prior-year quarter. Further, fully applied risk-weighted assets increased 9.7% year over year to CHF 237.9 billion ($244.2 billion). Phase-in CET 1 capital fell 5.1% year over year to CHF 36 billion ($37 billion) as of Sep 30, 2017.
Outlook
Wealth management client activity levels have improved on optimism among investors. However, management remains concerned about geo-political tensions and underlying macroeconomic uncertainties, which have been contributing to client risk aversion and low-transaction volumes. Though investors’ sentiments have improved, a sustained increase in client activity levels is not visible.
The company also highlighted several concerns, including headwinds from negative interest rates, though partially mitigated by the favorable impact of increasing U.S. dollar interest rates and normalization of monetary policy. Further, the proposed changes to the Swiss bank capital standards and global regulatory framework in Switzerland, will lead to higher capital requirements and expenses. However, amid a challenging operating environment, the company remains committed to the execution of its strategies.
Our Take
Results highlight a decent quarter for UBS Group with its major units displaying growth, though the Wealth Management Americas unit disappointed. Pressure on net interest income due to low rates remains a concern. Though UBS Group has been successful in trimming costs this quarter, its exposure to legal matters is likely to keep costs elevated in the near term.
Currently, UBS Group AG carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Foreign Banks
Deutsche Bank AG (DB - Free Report) reported net income of €649 million ($762.6 million) in third-quarter 2017, significantly up on a year-over-year basis. Income before income taxes grew 50.7% year over year to €933 million ($1.1 billion).
Barclays PLC’s (BCS - Free Report) third-quarter 2017 net income attributable to ordinary equity holders was £583 million ($763.1 million), reflecting a significant improvement from £190 million in the prior-year quarter.
The Bank of Nova Scotia (BNS - Free Report) reported third-quarter fiscal 2017 (ended Jul 31) results before the opening bell. Net income for the quarter came in at C$2.1 billion ($1.59 billion), jumping 7.1% year over year.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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