UBS profit beats estimates as rates offset trading slowdown

The Zurich-based bank reported net income of US$1.65bil (RM7.02bil) yesterday, aided by a 35% surge in interest income at the wealth management unit, the margin that the company makes on loans. — Reuters

ZURICH: UBS Group AG reported fourth-quarter profit that beat expectations and says it plans to buy back more than US$5bil (RM21bil) of shares this year, as rising interest rates helped offset a slump in trading fees and transaction income at the key wealth management business.

The Zurich-based bank reported net income of US$1.65bil (RM7.02bil) yesterday, aided by a 35% surge in interest income at the wealth management unit, the margin that the company makes on loans.

Earnings for that business broadly met estimates, with the bank reporting US$23.3bil (RM99bil) in wealth inflows. Revenues at the investment bank fell by 24% while compensation costs rose.

While UBS has stood out among global peers in its confidence that large-scale job cuts seen at Goldman Sachs Group Inc and elsewhere can be avoided, it is still contending with the impact of a slowdown in client activity and volatile markets.

Cost pressures playing out across the industry were particularly acute at the investment bank, while wealth management fees fell as clients held back from trading in the final three months of a year in which markets whipsawed.

UBS chief executive officer Ralph Hamers said that inflation, the war in Ukraine and the impact of Covid in China had kept investors in wait-and-see mode during the quarter.

“We see positive news coming on China, we see positive news also on inflation,” Hamers said in an interview with Bloomberg Television’s Manus Cranny.

“The next couple of weeks, from different sides, will give us much more data points to get a feel for whether we should be at risk or not.”The bank increased the dividend for 2022 to US$0.55 (RM2.34) per share.

UBS’s investment banking unit posted US$1.68bil (RM7.2bil) in revenue in the fourth quarter, while operating expenses increased 3% on higher variable pay.

The cost-to-income ratio at the investment bank jumped more than 24 percentage points. Revenue in advisory and capital markets slumped 52% in the quarter, broadly in line with Wall Street peers.

While rich clients are continuing to bring assets for UBS to manage, on average they were less active in seeking trading and investment services against the uncertain market backdrop. Revenues at the key wealth management unit declined 5% from the previous year, driven partly by transaction-based income which fell 19% in the quarter.

Question marks remain over the wealth-management strategy in the United States, after Hamers’ signature push into a broader wealth segment was abandoned last year.

Hamers faced a major setback in September when the bank announced it was pulling out of a deal to buy US robo-advisor Wealthfront. Instead, UBS has retrenched, saying it would focus on its traditional very high net worth customer base.

The bank plans to offer more traditional banking services to its wealthy American clients. The Swiss bank will also set targets for its expansion in wealth management in the United States, according to chairman Colm Kelleher.

UBS is seeking to expand its operations in the Middle East with a particular focus on wealthy Indians living in the region. Earlier this month, the bank hired a group of private bankers from Credit Suisse Group AG in Dubai to focus on its business that caters to the diaspora.

The Swiss bank saw significant inflows into its Asian wealth management business in the last three months of 2022, as rich customers flee its biggest rival. — Bloomberg

Credit Suisse clients concerned over the turmoil the bank has been experiencing are approaching UBS as an alternative for managing their wealth.

UBS has said it expects a boost in its China business in the second half of the year, as the country moves away from a zero-Covid policy and reopens the economy.

In asset management, revenues fell 31% from a year earlier with management fees down 25% on market performance and currency effects, the bank said. The cost to income ratio also rose in the unit, by 21.5 percentage points. - Bloomberg

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