UBS AG, Switzerland's largest bank, attracted the most new money from wealthy customers since the end of 2007 and reported first-quarter profit that beat analysts' estimates.
The bank said wealth management and retail clients added a net 16.7 billion francs ($19 billion) in the quarter, more than double the estimate of analysts surveyed by Bloomberg. Net income was 1.81 billion francs, topping the 1.69 billion-franc forecast of analysts.
Chief Executive Officer Oswald Gruebel attributed the increase in new funds to “the return of client
trust and confidence” after wealthy customers withdrew 251.6 billion francs in the nine quarters through June. Earnings at the investment bank declined on lower revenue from trading stocks and bonds and advising clients.
“The main thing is they're having inflows again, and that's good,” said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets. “The investment bank will remain a construction site for
UBS for a while.”
Investment Bank
Earnings at the wealth management and Swiss bank division fell 9.7 percent in the first quarter to 1.05 billion francs. UBS saw an increase in the wealth management gross margin, or the amount of revenue the bank makes on assets under management, to 98 basis points from 93 basis points in the year-earlier quarter. Gruebel aims to increase the margin to more than 100 basis points, or 1 percentage point, this year.
Wealth Management Americas, which includes the former Paine Webber, saw a huge jump in profits. The unit, which is run by former Merrill Lynch brokerage boss Robert McCann, reported an increase in pretax profit to 111 million francs ($127 million). A year earlier, that figure was closer to 15 million francs, or $17 million.
Meanwhile, the asset management unit reported a 9.5 percent decline in earnings to 124 million francs. Pretax profit at the investment bank fell 30 percent to 835 million francs.
Revenue from sales and trading of equities, fixed-income, currencies and commodities declined 9 percent to 3.1 billion francs in the quarter. UBS aims to boost these revenues to a quarterly rate of about 3.75 billion francs by 2014.
‘Pragmatic View'
Gruebel, 67, told Swiss magazine Bilanz in an interview last month that he underestimated how long it would take for the investment bank to rebound after the credit crisis, when UBS amassed more than $57 billion in writedowns and losses. The unit tries to increase risk-taking to boost profit “only when sensible opportunities arise,” which hasn't been the case over the past few months, he told the magazine.
UBS may need to cut costs at the investment bank this year if revenue doesn't improve, after hiring more than 1,700 bankers for the unit in the past two years, Gruebel said in February.
“UBS tried to rebuild the base at the investment bank where there was some degree of business still there,” Christopher Wheeler, a London-based analyst at Mediobanca SpA, said before today's release. “Gruebel is taking a pragmatic view, saying maybe I can't just depend on the markets getting better and I have to be a bit more inventive.”
Trails Competitors
UBS's revenue at the investment bank has trailed competitors since 2009, when Gruebel set the targets for returning earnings at the unit to pre-crisis levels by 2014. Analysts say Gruebel may cut his targets for the investment bank because they were set before the Basel Committee on Banking Supervision stiffened rules last year, forcing lenders to set aside more capital for their riskiest operations.
Chief Financial Officer John Cryan, 50, told reporters on a conference call today the bank is sticking with its targets. The outlook for the trading businesses “seems OK” as markets are seeing some volatility, Cryan said. Client activity levels are “acceptable,” and “a lot better than they had been in the second half of 2010,” he said.
Swiss regulators have forced UBS and
Credit Suisse Group AG to fulfill Basel's stricter requirements on trading-book capital since January, a year before their international competitors. The Swiss government, which rescued UBS with a 6 billion-franc capital injection during the financial crisis, last week asked parliament to approve legal changes that will require UBS and
Credit Suisse Group AG to hold almost twice as much capital as the new Basel rules require starting in 2019.
Fixed-Income Trading
Cutting the fixed-income trading unit's 8 billion-franc annual revenue target by half would reduce the capital consumed by the division and improve UBS's return on equity by 17 percent, according to Nicholas Watts, an analyst at Redburn Partners LLP in London who has a “buy” rating on UBS shares.
UBS may scale down its fixed-income business in the U.S. to improve profitability, JPMorgan Chase & Co. analysts led by Kian Abouhossein wrote in a note to clients on April 20, adding that there are “limited opportunities” for UBS to reach its target from the business as they see debt trading revenue for all banks declining by 3 percent annually in the next two years.
--Bloomberg News--
