A month has gone by since the last earnings report for UBS (UBS Quick QuoteUBS - Free Report) . Shares have added about 5.6% 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's Q3 Earnings Fall Y/Y, Revenues Down

UBS Group AG reported third-quarter 2019 net profit attributable to shareholders of $1.05 billion, down nearly 16% from the prior-year quarter.

The company’s performance was affected by slight rise in expenses. Also, results were negatively impacted by fall in net fee and commission income (down 1% year over year) and lower net interest income (down 8%).

The company recorded higher profitability in Asset Management unit and Personal & Corporate banking on an adjusted basis. However, performance of Corporate Center, Global wealth management and Investment Bank units was disappointing.

Operating Income Declines, Expenses Rise

UBS Group’s adjusted operating income decreased 3.2% to $7.13 billion from the prior-year quarter.

Adjusted operating expenses rose 1.3% to $5.67 billion in the third quarter. Expenses included provisions for litigation, regulatory and similar matters of $65 million.

Business Division Performance

Global wealth management division’s adjusted operating profit before tax came in at $919 million, down 2% year over year. Lower recurring net fee income due to margin compression and decline in net interest income affected results. Net new money inflows were $15.7 billion.

Asset Management unit’s adjusted operating profit rose 6% year over year to $135 million, supported by rise in net management fees. Also, invested assets rose to $858 billion.

Personal & Corporate banking division’s adjusted operating profit before tax was down 10% year over year to $360 million. Higher transaction-based income was offset by increase in credit loss expenses and lower interest income. Notably, annualized net new business volume growth for personal banking was strong at 3.1%.

The company’s Investment Bank unit’s adjusted operating profit before tax came in at $203 million, down 59% from the prior-year quarter. Challenging market conditions affected both Equities and FX, Rates & Credit revenues. Rise in expenses was another headwind.

Corporate Center incurred adjusted operating loss before tax of $160 million in the quarter.

Strong Capital Position

As of Sep 30, 2019, UBS Group's invested assets were $3.42 trillion, up 1.2% sequentially. Total assets increased marginally to $973.1 billion.

UBS Group’s phase-in common equity tier (CET) 1 ratio was 13.1% as of Sep 30, 2019, compared with 13.5% on Sep 30, 2018. Phase-in CET 1 capital decreased marginally year over year to $34.7 billion. Fully applied risk-weighted assets climbed 3% to $264.6 billion.

Outlook

The company expects easing of monetary policy by the central banks to help offset the slowing global economic growth over the medium term. Also, positive momentum toward resolving these issues might improve confidence and the economic outlook. However, geopolitical tensions and trade disputes are likely to dampen investor confidence.

Also, low and persistent negative interest rates and expectations of further monetary easing will adversely impact net interest income on a year-over-year basis.

UBS Group’s regional and business diversification, along with actions it is undertaking, will help mitigate the above-mentioned headwinds. Recurring revenues are also likely to benefit from higher invested assets. The company expects to remain committed to delivering on its capital-return objectives and creating sustainable long-term value for shareholders.

Restructuring expenses of around $200 million are expected in 2019. In addition, IB reorganization will record around $100 million of restructuring expenses in the fourth quarter.

Excluding litigation, management expects an uptick in adjusted costs of around $200 million sequentially in the fourth quarter, in line with 2018, reflecting normal seasonality, including the UK bank levy and build-up of regulatory-related expenses.

During the fourth quarter, management expects to realign the client coverage between GWM and P&C, resulting in a one-time shift and referral fee of around $70 million paid by P&C to GWM.

In investment bank, the reorganization is expected to realign the business to better serve the clients, and is likely to deliver around $90 million of net cost savings.

Financial Targets (2019-2021)

For the Group, UBS targets return on CET1 capital of nearly 15% in 2019 and adjusted cost to income ratio of 77%. Also, the same are expected to be nearly 17% and 72%, respectively, by 2021.

Business Divisions’ Outlook

Global Wealth Management: Net new money growth is expected in the range of 2-4% and adjusted Cost/Income Ratio of 75% and 70% in 2019 and 2021, respectively. Also, adjusted profit before tax is expected to grow 10-15%.

Personal & Corporate Banking: Adjusted pre-tax profit growth is expected in the range of 3-5%, net interest margin of 145-155 basis points and adjusted Cost/Income Ratio of 59% and 56% in 2019 and 2021, respectively.

Asset Management: Net new money growth excluding money market flows is expected in the range of 3-5% and adjusted Cost/Income Ratio is expected to be 72% and 68% in 2019 and 2021, respectively. Further, adjusted profit before tax is expected to grow about 10% in the medium term.

Investment Bank: Annual pre-tax return on attributed equity is expected to be greater than 15%. Adjusted Cost/Income ratio is expected to be 78% and 75% in 2019 and 2021.

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.