UBS profits surge as wealth management arm shines

Swiss lender’s investment bank buoyed by global boom in M&A

UBS is awaiting the result of an appeal against a €4.5 billion court decision in France for facilitating tax fraud, due in late September.

UBS is awaiting the result of an appeal against a €4.5 billion court decision in France for facilitating tax fraud, due in late September.

 

UBS reported a surge in second-quarter profit as the world’s largest wealth manager reaped the benefits of buoyant markets and a boom in mergers and acquisitions.

The Swiss lender’s earnings climbed 63 per cent to $2 billion (€1.7 billion), comfortably surpassing the $1.35 billion analysts had forecast. Revenue beat expectations in the bank’s four main divisions, while pretax profit increased across all four of its geographic regions.

“Momentum is on our side and our strategic choices and initiatives are paying off,” chief executive Ralph Hamers said on Tuesday. “We have no intention of letting go of this.”

Since joining from Dutch bank ING in November, Hamers has overseen a rebound in earnings as the global economy begins to emerge from the worst of the pandemic.

Shares in UBS, which is the first of Europe’s big banks to report earnings, rose 4.1 per cent on Tuesday, extending their gains in the past year to 19 per cent.

New loans

Client assets invested through its wealth- and asset-management divisions rose 4 per cent to $4.5 trillion, boosting fee income. UBS made $7 billion in net new loans to its ultra-rich clients – particularly in the United States, which accounted for $5.3 billion – while transaction-based earnings were up 16 per cent as customers shifted into more complicated, higher-margin products.

“We see an opportunity to increase our US lending because our loan penetration is low” compared with peers, Mr Hamers said.

As a result, pretax profits at the wealth-management arm jumped to $1.3 billion, up 47 per cent from a year ago. Chief financial officer Kirt Gardner said the division had enjoyed its best-ever second quarter, with record profits in Asia.

Performance was also good at the investment bank. Echoing trends on Wall Street, revenue at the advisory and capital markets unit jumped 68 per cent to a record. This was largely due to higher M&A advisory fees amid a string of takeovers. Similarly, capital markets revenues were the highest since 2014, executives said.

That offset a 14 per cent decline in revenue at the trading business, reflecting calmer markets compared with the peak of the coronavirus pandemic a year ago. Overall investment-banking profits rose 9 per cent to $668 million.

“The result marks another impressive quarter with strong growth across all divisions,” said Andrew Coombs, an analyst at Citigroup.

The performance will widen the gap with UBS’s domestic rival Credit Suisse, which is reeling from a pair of scandals that have led to billions of dollars in losses and top staff defecting to rivals.

“We are growing faster than some of our competitors; clearly it could be because some of them may not have had a good quarter,” Mr Hamers said. “If we can hire good people in Asia, and they come from some of our competitors, we will do so, but that is normal market practice.”

Blemishing the earnings was another $87 million loss related to the collapse of Archegos Capital. UBS took a $774 million hit from the spectacular unravelling of the over-leveraged family office in the first quarter, while Credit Suisse lost $5.5 billion. As a result, earnings at UBS’s hedge-fund business tumbled, with performance fees dropping 46 per cent in the quarter.

Litigation issues

The bank also faces multiple litigation issues. It is awaiting the result of an appeal against a €4.5 billion court decision in France for facilitating tax fraud, due in late September. A parallel case is also under investigation by Belgian authorities. UBS has $2 billion set aside to cope with expected legal costs.

Hamers himself is being investigated by a Dutch court for his role in a money-laundering scandal during his time at ING. He has denied wrongdoing.

The bank also strengthened its balance sheet during the pandemic and pledged $600 million of stock buybacks. Its core equity tier one capital ratio – a key measure of financial strength – rose to 14.5 per cent, ahead of the bank’s 13 per cent target.

Hamers nevertheless sounded a note of caution. Client activity was slowing in the third quarter and there was “continued uncertainty about the environment and economic recovery” due to the spread of the Delta coronavirus variant, he said.

“Investors are wrestling with the conundrum of high inflation[and] equity markets are at all-time highs,” he added. – Copyright The Financial Times Limited 2021