A disappointing quarterly result scratches the reputation of the former model student UBS. In the spring quarter, the major Swiss bank increased profits by five percent to $2.1 billion, the best result for a decade. But without the proceeds from the sale of the real estate joint venture with Mitsubishi and another transaction totaling $810 million, profit would have fallen significantly. The bank thus missed market expectations for the first time since the final quarter of 2018. On the stock market, UBS shares fell by seven percent.
“Today marks a setback in the investment case, in our view, and demonstrates how much UBS depends on a more favorable market environment to meet its financial goals,” said Citi analyst Andrew Coombs. The greatest concern is that the bank has hardly reacted to the market slump on the cost side. CEO Ralph Hamers said the bank would not sacrifice its investments in growth areas. “But if the situation worsens, we have other levers in our hands and we will pull them.” A hiring freeze or even a restructuring are currently not an issue.
Adjusted pre-tax income fell in all four divisions from April to June. “The second quarter was one of the most difficult phases for investors in the last ten years,” explained Hamers. In investment banking, the result collapsed by 39 percent. Above all, advising companies on IPOs and takeovers was paralysed. A similar trend had already been seen at major US banks such as Goldman Sachs, which suffered from loan default provisions in addition to the slump in investment banking. The danger of a recession should also be reflected in the profit figures of European banks.
Concerns about the economy and inflation also left their mark on UBS’s core business, wealth management. Transaction income fell. Due to the falling stock market prices, the fee income linked to the customer’s custody accounts also fell. After all, the interest rate hikes by the US Federal Reserve brought more money into the institute’s coffers, so that the division’s pre-tax profit shrank by eleven percent overall.
Jefferies analyst Flora Bocahut rated the fact that growth slowed significantly as worrying. Hamers explained that inflows had developed positively in the first three weeks of July. Although the environment is likely to remain uncertain in the coming months, the bank is on track to meet its full-year return and cost-to-income targets. In addition, Hamers reiterated the requirement questioned by some analysts that they want to buy back their own shares worth around five billion dollars in the current year.