ZURICH: UBS Group AG will bolster shareholder returns with plans to buy back four billion francs (US$4.5bil) of shares over the next three years after rising fee income and investment bank revenue propelled gains at the world’s largest wealth manager.
The lender is doubling the size of a previous repurchase programme and said it expects to buy back up to US$1.1bil of shares in the first quarter, according to a statement.
The bank finished off the year strongly, with fourth quarter net income of US$1.7bil much higher than analyst estimates and the wealth manager meeting or beating all its 2020 targets.
The results give a boost to chief executive officer Ralph Hamers, whose start at the helm of Switzerland’s largest bank barely three months ago has been overshadowed by a Dutch probe into his role in a money laundering scandal at his former employer ING Groep NV.
While chairman Axel Weber has backed the new CEO, the lender is facing a challenging year as the probe is expected to drag into next year, when Weber is scheduled to step down.
The focus on wealthy clients, coupled with relatively conservative lending standards, has allowed UBS to sail relatively smoothly through the volatility caused by the coronavirus pandemic.
The Swiss bank added just US$66mil to its loan loss provisions during the quarter, compared with analyst estimates of US$159.5mil, while higher recurring fee income helped drive a 22% gain in pre-tax income in private banking. The lender also said the strong activity continued into this year.
“We expect revenues in the first quarter of the year to be positively influenced by seasonal factors such as higher client activity compared with the fourth quarter of 2020, ” the bank said in a statement, while warning on the uncertain outlook because of the pandemic. “Higher asset prices should have a positive effect on recurring fee income in our asset gathering businesses.”
UBS had previously indicated that it planned to look at boosting buy backs, while reducing a dividend that was higher than many of its competitors.
The new policy, which will see the dividend this year about half that of 2019, will likely see shareholder returns of about US$3.7bil this year, from US$3.4bil in 2019.
Switzerland’s largest bank stands in contrast to its European competitors who have had their hands tied by the European Central Bank on strict capital return policies while the continent’s economies have still to face the full economic outcome of the pandemic.
The muted credit impairments bring UBS close to the biggest US banks compared with many of its European peers.
Wall Street firms, which had provisioned more aggressively at the onset of the pandemic, released US$1.56bil worth of provisions in the fourth quarter. Still, JPMorgan Chase & Co CEO Jamie Dimon warned that “we don’t consider it profi t– it’s ink on paper.”
UBS’s results are also the first indication how Europe’s investment banks fared in the final months of last year, with the bank also seeing profit jump after a 21% rise in trading income.
The top five U.S. investment banks – which combined for a record US$30bil in profit in the quarter – saw their fixed-income trading revenue rise almost 10% from a year earlier while the equities business surged 35%. UBS saw a 28% jump in equities revenue, while fixed income was up 5%.
UBS has a relatively small trading desk after pivoting from investment banking to wealth management in the wake of the financial crisis. Weber, who oversaw that strategy, tapped Hamers last year to add fresh ideas and momentum as rivals such as Credit Suisse Group AG gained ground on the world’s largest wealth manager. — Bloomberg
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