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© Reuters. File photo: The logo of the Swiss bank UBS was seen at a branch in Zurich, Switzerland, on June 22, 2020. REUTERS/Arnd Wiegmann
Brenna Hughes Neghaiwi
Zurich (Reuters)-UBS announced on Tuesday that its net profit for the second quarter increased by 63%, easily exceeding expectations, as the active market continues to help the world’s largest wealth management company achieve higher returns by managing funds for the wealthy.
In a survey conducted by the group of 20 analysts, the Swiss bank’s net profit was US$2.01 billion, much higher than the expected US$1.34 billion, due to the rapid fee income from its private banking and asset management businesses. Increase, asset prices rise.
“The momentum is on our side, and our strategic choices and initiatives are paying off,” CEO Ralph Hammers said in a statement, adding that all business units and regions have contributed to growth.
UBS shares rose 3.15% in pre-market trading activity, while the benchmark Swiss market index rose 0.4%. Analysts pointed out that, as Jefferies (NYSE:) pointed out in a report, overall revenue was stronger than expected and “cost control was good.”
Hammers, who has held the highest position since November, has set his sights on digitization to help win more business from the lower levels of the world’s wealthy class. According to a Reuters report in June, UBS believes that after a new online platform is launched in May 2020, it is possible to earn $30 billion in revenue next year.
The platform continued to see capital inflows in the second quarter, adding another US$500 million since the beginning of June, bringing its investment assets to US$4.2 billion.
On Tuesday, UBS added $25 billion in fee-based customer inflows throughout the wealth management field, especially thanks to strong growth in the United States, which saw continued growth in its business with the super-rich. Coupled with a strong market, this helped drive its global wealth management business investment assets to grow 4% from the previous month to US$3.2 trillion.
Transactions between its wealthy and ultra-rich customers also remained strong, which helped Switzerland’s largest bank increase the pre-tax profit of its flagship business by 47%, as the increase in loans also helped offset the drag on its net interest income from falling interest rates.
Decline in market volume
As the first major European bank to announce earnings, UBS broke profit expectations following its US counterparts. The economic recovery and the surge in transactions helped JPMorgan Chase (NYSE:), Goldman Sachs (NYSE:), Citigroup (NYSE code:) and Bank of America (NYSE code:) both improved profits in the second quarter.
But transaction revenue took a hit because lenders failed to match the comparable figures for the previous year, when unprecedented volatility in the first few months of the coronavirus pandemic helped drive record transaction volumes.
Similarly, UBS’s global market trading business revenue fell by 14%, but the decline was not as pronounced as some U.S. banks. It indicates that the lower transaction volume may continue into this quarter.
“We expect that the third quarter of 2021 revenue will be affected by seasonal factors, such as lower levels of customer activity compared to the second quarter of 2021,” its outlook statement said.
The surge in transaction advisory income helped offset the decline in market returns and boosted the overall pre-tax profit of its investment banks by 9%. In the second quarter, M&A consulting revenue more than tripled, while in the capital market it increased by 35%.
UBS reported in April that the collapse of the U.S. investment fund Archegos resulted in unexpected losses of US$774 million, causing global banks to suffer a total loss of more than US$10 billion.
Archegos breach of contract Credit Suisse (six:). After the collapse of US$10 billion in funding related to supply chain finance company Greensill Capital, UBS’s intra-city rivals have been under pressure to propose reform plans because Archegos has suffered more than US$5 billion.
Credit Suisse announced its earnings on July 29, and subsequently Deutsche Bank (DE:) July 28.
On Tuesday, UBS confirmed a further $87 million in trading losses caused by the Archegos incident in the second quarter, as previously pointed out.
In Switzerland, UBS’s domestic corporate and retail banking business’s pre-tax earnings doubled, thanks to its home country’s relaxation of COVID-related restrictions this year and a rebound in economic activity.
(This story corrects the net profit figure in the second paragraph to 2.01 billion USD (not 2.91 billion USD))
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