As UBS Group reported strong third-quarter results, CEO Sergio Ermotti pledged to drive wealth management profit higher and cut costs as he seeks to revive the bank's shares.
The bank's net income for the third-quarter period beat the highest estimate, with pre-tax profit also ahead of expectations. Net income increased to 1.25 billion francs ($1.25 billion), while pre-tax profit came in at 1.67 billion francs ($1.67 billion).
The global wealth management unit's profit before taxes rose 3% in the third quarter, while the unit's income and expenses both rose by 2%.
At the bank's investor day in London, Mr. Ermotti cited a bolder set of financial targets, including profit growth in private banking and a commitment to cut about 800 million francs ($800 million) of costs and further boost capital. The bank kept a January goal of attracting net new money and said it's ahead on its share buyback plans. It also said it may take longer than expected to meet some of its goals.
Mr. Ermotti is under pressure to show investors how the bank can reap greater profits from a merger of its two wealth management businesses and revive a lackluster share price. As competitors close in, some investors have approached the bank to ask about performance, people with knowledge of the matter have said. A 2-billion-franc ($2 billion) share buyback plan earlier this year was questioned by investors who said the bank had room to do more.
‘Broadly Consistent'
"Previous guidance was for up to 2 billion francs which we still believe could be increased over time," Citigroup analysts led by Andrew Coombs wrote in a note to investors, saying the bank could return double that figure to 2020. "UBS's financial targets are broadly consistent with existing consensus."
Chief financial officer Kirt Gardner said at the investor day that the bank would update investors on its buyback and dividend plans at the time of its fourth-quarter results.
(More: No changes to compensation plan for UBS advisers in 2019)
Changed Targets
The bank had already modified targets in January, underwhelming analysts and investors who had argued that they were too conservative and the bank should do more to improve returns and bring down costs. On Thursday the lender said it has already exceeded its buyback target for the year, acquiring 650 million francs of stock. It expects to boost its dividend by a mid- to high-single-digit percent per year.
"I'd say the good third-quarter results saved the day," said Martin Moeller, a fund manager at private bank UBP. He holds UBS shares.
While UBS shares have declined about 23% this year, that's still better than rivals Credit Suisse Group, which has lost about 27% and Julius Baer Group Ltd.'s 26% drop. UBS shares rose 1.9% in Zurich to 13.50 francs.
While seeking to convince investors about the potential of the wealth management business, Mr. Ermotti is contending with the sudden departure of investment banking head and top dealmaker Andrea Orcel, who is leaving the lender to become chief executive officer of Banco Santander. The investment bank had outperformed other units in recent quarters, with the bank saying strategy is set to remain unchanged under newly minted co-heads Piero Novelli and Rob Karofsky.
The appointment of Martin Blessing and Tom Naratil as co-presidents of the combined global wealth management business puts two potential successors to Mr. Ermotti at the top of the bank's most important unit, responsible for the bulk of pre-tax profit.
(More: UBS laying off dozens of wealth management staff)
Mr. Ermotti and Mr. Gardner faced a grilling from analysts about why the new targets in January — from group profitability to net new money — weren't more aggressive. Mr. Ermotti defended the goals as ambitious, "realistic" and achievable considering the lack of clarity from a macroeconomic and geopolitical standpoint.
Tech Upgrade
Separately, the bank said it is pursuing the biggest overhaul of its systems at the wealth management business in the Americas in almost two decades as it seeks to compete in the region.
UBS is the first major client to use new technology developed by Broadridge Financial Solutions Inc., which is known for processing trades, executives of both companies said by phone. UBS is revamping back-office functions such as bookkeeping and trade settlements, while streamlining management of multiple accounts for ultra-wealthy clients.
"We don't look at this just as a technology initiative, this is a major business transformation," said Kate Newcomb, chief operating officer of UBS wealth management in the Americas. "This is the biggest thing we've probably done in years."
UBS has been pushing for growth in the U.S., the country with the biggest share of the world's millionaires, since its 2000 acquisition of retail brokerage Paine Webber Group for about $16 billion. Rivals are multiplying, and firms including Morgan Stanley and Bank of America Corp. are investing in technology to boost assets under management.
Mr. Ermotti's cost-cutting goals at the wealth-management unit were called " unambitious" by JPMorgan Chase & Co. analysts.
Ms. Newcomb said the strategy can help bring in new assets because it will help clients expand on global trading capabilities and get better performance reports across assets and accounts. It will also give them a clearer picture of a range of products including mortgages, annuities and brokerage accounts.
"This is a very significant investment," said Tim Gokey, president of Broadridge. "This platform is going to create significant benefits for UBS and also for other clients."
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