UBS Group Post Robust Q1 Earnings, Profit Jumps 88% Y/Y
UBS Group AG (UBS) reported first-quarter 2015 net profit attributable to shareholders of CHF 1.98 billion ($2.08 billion), soaring a whopping 88% year over year. The results were driven by elevated net interest income (up 4% year over year), increased net trading income (up 57% year over year) and higher net fee and commission income (up 7% year over year) as well.
UBS Group AG experienced own credit gain on financial liabilities of CHF 226 million ($237.5 million) as against a gain of CHF 88 million ($92.4 million) in the prior-year quarter. Further, the company recorded net restructuring charges of CHF 305 million ($320.5 million) in the reported quarter, up 49.5% year over year.
Also, the company’s results included gains on sales of real estate of CHF 378 million ($397.2 million) and a gain of CHF 141 million ($148.2 million) on the sale of a subsidiary. Further, provisions for litigation, regulatory and similar matters of CHF 58 million ($60.9 million) were recorded, up 70% from the prior-year quarter.
Quarter in Detail
UBS Group AG’s adjusted operating income increased 13.3% from the prior-year quarter to CHF 8.10 billion ($8.51 billion). Adjusted operating expenses were up 3% year over year to CHF 5.83 billion ($6.13 billion). The rise reflected elevated general and administrative expenses and personnel expenses
UBS Group AG’s pre-tax operating profit on an adjusted basis came in at CHF 2.27 billion ($2.34 billion) in the quarter, up 52.6% year over year.
The Wealth Management division generated adjusted operating profit before tax of CHF 856 million ($899.5 million) in the quarter, up 30% year over year. Notably, the quarter marked the ‘best quarterly result’ for this division since 2008. Wealth Management Americas division’s adjusted operating profit before tax came in at CHF 277 million ($291.1 million), up 9.9% from the prior-year quarter.
Retail & Corporate division’s adjusted operating profit before tax was CHF 443 million ($465.5 million), up 10.5% year over year. The Global Asset Management unit’s adjusted operating profit before tax jumped 47.6% year over year to CHF186 million ($195.4 million) in the quarter. Also, Investment Bank unit’s adjusted operating profit before tax came in at CHF 844 million ($886.9 million) in the quarter, up 53.7% year over year.
However, Corporate Center reported adjusted operating loss before tax of CHF 340 million ($357.2 million) compared with a loss of CHF 501 million ($526.5 million).
Capital Position
As of Mar 31, 2015, UBS AG's invested assets were CHF 2,708 billion ($2,808 billion), up 11.7% year over year. Total assets stood at CHF 1.05 trillion ($1.09 trillion), increasing 6.7% year over year.
UBS Group’s phase-in BIS Basel III common equity tier (CET) 1 ratio stood at 18.6% as of Mar 31, 2015, compared with 17.9% in the prior-year quarter. Further, phase-in BIS Basel III CET 1 capital decreased 1% year over year to CHF 40.8 billion ($42.3 billion) as of Mar 31, 2015.
Phase-in Basel III RWA decreased 4.6% year over year to CHF 219.4 billion ($227.5 billion). Fully applied RWA also declined 4.6% year over year to CHF 216.4 billion ($224.4 billion).
On a fully applied basis, UBS Group’s BIS Basel III common equity tier 1 ratio increased 50 basis points (bps) year over year to 13.7%. Swiss systemically relevant banks (SRB) leverage ratio stood at 5.6%, up 60 bps year over year.
Notably, at the Annual General Meeting of UBS Group on May 7, 2015, shareholders will vote on the company’s previously announced proposals of 100% year-over-year increase in its ordinary dividend to CHF 0.50 per share for 2014 and one-time supplementary capital return of CHF 0.25 per share to be paid following completion of the acquisition of all shares in UBS AG as part of the establishment of UBS Group AG.
Outlook
UBS Group believes that several macroeconomic headwinds and geopolitical issues continue to persist and are likely to remain unresolved in the near term. Owing to the current interest rate scenario in Switzerland and other parts of Europe, the company is undertaking initiatives for improving the pricing of some Wealth Management accounts. Excluding possible outflows tied with these initiatives, the company expects wealth management businesses to continue to deliver positive net new money in second-quarter 2015.
However, amid a challenging operating environment, the company remains committed to the execution of its strategies and expects to generate sustainable returns for shareholders.
In Conclusion
Results reflect a strong quarter for UBS Group. Amid the overall economic volatility, UBS Group AG will focus on building its capital levels. Restructuring initiatives including cost control are encouraging. However, the stressed operating environment remains a concern.
UBS Group currently carries a Zacks Rank #1 (Strong Buy).
Performance of Other Foreign Banks
Royal Bank of Scotland Group plc (RBS - Snapshot Report) reported a loss for first-quarter 2015. Loss attributable to shareholders came in at £446 million ($719 million) compared with a profit of £1.2 billion ($1.9 billion) in the prior-year period. Results reflected a rise in net interest income, more than offset by a fall in non-interest income, and higher restructuring, litigation and conduct costs.
Higher legal charges dragged Deutsche Bank AG’s (DB - Analyst Report) first-quarter 2015 results as it reported net income of €559 million ($631 million), down 49% year over year. The reported quarter includes litigation costs of €1.5 billion. The huge fine stemming from Deutsche Bank’s settlement with the U.S. and British authorities, to resolve charges over its alleged role in manipulation of the interbank offered rates benchmarks, eclipsed the strong revenue growth witnessed by the company in the quarter.
Barclays PLC’s (BCS - Analyst Report) adjusted net income attributable to shareholders came in at £1.1 billion ($2.0 billion) for first-quarter 2015, up 20% year over year. The bottom line was mainly driven by curtailment in non-core assets and improvement in the Investment Banking segment.
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