Back to top

Image: Bigstock

UBS Group AG (UBS) Q1 Earnings Impress, Expenses Escalate

Read MoreHide Full Article

UBS Group AG (UBS - Free Report) reported first-quarter 2018 net profit attributable to shareholders of CHF 1.5 billion ($1.6 billion), up around 19% from the prior-year quarter.

Results displayed rise in net fee and commission income (up 3% year over year) and higher net interest income (up 3% year over year). However, the quarter reflected elevated expenses.

The company recorded improved profitability in Global wealth management and Investment Bank units. However, performances in Personal & Corporate banking, Corporate Center and Asset Management units were disappointing.

Rise in Operating Income Offset High Expenses

Excluding the significant items, UBS Group AG’s adjusted operating income increased 2.7% to CHF 7.7 billion ($8.1 billion) compared with the prior-year quarter.

Adjusted operating expenses flared up 3.6% year over year to CHF 5.8 billion ($6.1 billion). Expenses included provisions for litigation, regulatory and similar matters of CHF 11 million ($11.6 million).

Business Division Performance

The global wealth management division’s adjusted operating profit before tax came in at CHF 1.13 billion ($1.19 billion), up 14% year over year. Higher net interest margins and elevated invested assets, along with loan growth and increased client levels, mainly aided revenues. Net new money came in at CHF 19 billion ($20.1 billion) in the quarter.

The Asset Management unit’s adjusted operating profit dipped 12% year over year to CHF 108 million ($114 million) in the quarter, marred by lower performance fees and elevated personnel costs.

The company’s Investment Bank unit’s adjusted operating profit before tax came in at CHF 629 million ($663.8 million), up 13% from the prior-year quarter. Higher equities and corporate client solutions revenues aided the results.

Personal & Corporate banking division’s adjusted operating profit before tax was down 10% year over year to CHF 393 million ($414.7 million). Funding cost, elevated expenses and interest rate headwinds were partly offset by higher transaction-based and recurring net fee income. Notably, annualized net new business volume growth for personal banking was 6.3%.

Corporate Center reported adjusted operating loss before tax of CHF 147 million ($155.1 million) compared with a loss of CHF 207 million witnessed in the year-ago quarter.

Strong Capital Position

As of Mar 31, 2018, UBS AG's invested assets were CHF 3.16 trillion ($3.31 trillion), up 8.2% year over year. Total assets came in at CHF 919.4 billion ($963.6 billion), inching up around 1.1% year over year.

UBS Group’s phase-in common equity tier (CET) 1 ratio was 13.1% as of Mar 31, 2018, compared with 14.1% as of Mar 31, 2017. Furthermore, phase-in CET 1 capital increased 6.1% year over year to CHF 33.2 billion ($34.8 billion) as of Mar 31, 2018. Fully applied risk-weighted assets climbed 14.4% year over year to CHF 253.8 billion ($266 billion).

Outlook

Though geopolitical tensions persist, management believes global economic growth prospects will continue to support markets.

Some factors expected to impact the bank’s businesses in the second quarter include economic growth expectations, interest rates, equity market levels and foreign exchange rates. Moreover, though market volatility improved from the prior-year quarter’s historic lows, it remains subdued leading to low client-activity levels. Therefore, due to seasonality, the second-quarter transaction based income in Investment Bank and Global Wealth Management businesses will likely record a decline.

Funding costs associated with long-term debt and capital instruments issued as per regulatory requirements are projected to escalate in the second quarter.

Notably, management expects gradual rise in U.S. dollar interest rates and improved U.S. economy to aid net interest income. Additionally, continued momentum in businesses is estimated to report improved results in the second quarter, reflecting a diversified business model, as well as progress toward achievement of strategic and financial targets.

Our Take

Results highlight a decent quarter for UBS Group AG, with its major units displaying growth. We remain optimistic as the company managed to sustain profitability amid a number of headwinds encountered in the quarter. Though the bank remains focused on building its capital levels, escalating costs is a concern.
 

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.

Among other foreign banks, Deutsche Bank AG (DB - Free Report) will report March quarter-end results on Apr 26, Itau Unibanco Holding S.A. (ITUB - Free Report) on May 1 and Mitsubishi UFJ Financial Group, Inc. (MUFG - Free Report) on May 15.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Published in