UBS Stock Dips On Weak Q1 Results; Sees Higher Net Interest Income

Shares of UBS Group AG were losing around 4 percent in the morning trading in Switzerland as well as in pre-market activity on the NYSE after the banking major reported Tuesday sharply lower profit in its first quarter due to increased U.S. litigation provision and weak revenues. The Swiss bank, which is in deal to buy domestic peer Credit Suisse Group AG, also warned about ongoing uncertainties, but said it expects net interest income will remain at higher levels.

Regarding the acquisition of Credit Suisse, the bank said it is focused on completing the deal most likely in the second quarter of 2023, which will advance its strategy, particularly in Global Wealth Management and Switzerland.

Looking ahead, UBS said, “The macroeconomic situation going forward remains uncertain, and while concerns about the stability of banks have abated, they have not gone away. As a result, client activity levels could remain subdued in the second quarter of 2023. Weak client sentiment may affect net new assets in our asset-gathering businesses; however, we expect net interest income will remain at higher levels, compared with last year, in the current interest rate environment.”

According to the company, the recent liquidity concerns in the banking sector and geopolitical tensions, particularly between the US and China and with regard to the Russia-Ukraine war, led to significant uncertainty in asset valuations and the outlook for economic growth.

Sergio Ermotti, UBS’s Group CEO, further said the company is in advanced discussions with the US Department of Justice with a view to resolve US residential mortgage-backed securities litigation matter which dates back 15 years.

Further, the company said it intends to resume share repurchases, which were temporarily suspended following the announcement of the anticipated acquisition of Credit Suisse, as soon as possible.

For the first quarter, net profit attributable to shareholders fell 52 percent to $1.03 billion from last year’s $2.14 billion. Earnings per share of $0.32 were lower than prior year’s $0.61.

Profit before tax declined 45 percent from last year to $1.50 billion. The result included an increase in provisions of $665 million related to the US residential mortgage-backed securities litigation matter.

On an underlying basis, profit before tax was $2.35 billion, down 22 percent from the prior year.

Segmental profit before tax in Global Wealth Management dropped 7 percent from last year to $1.2 billion, asset Management fell 46 percent and investment Bank declined 49 percent. This was partly offset by 40 percent rise in personal & Corporate Banking pre-tax profit.

Operating expenses increased 9 percent, driven by an increase in provisions related to the US RMBS litigation matter. Excluding this provision, operating expenses would have decreased 1 percent.

Total revenues decreased 7 percent to $8.74 billion from prior year’s $9.38 billion. Underlying revenues decreased 8 percent.

Among segments, Global Wealth Management revenues decreased 2 percent from last year to $4.79 billion, while net interest income increased 31 percent, mainly due to an increase in deposit revenues amid higher interest rates.

In Personal & Corporate Banking, revenues increased 18 percent and net interest income grew 32 percent, mainly driven by higher deposit margins, and higher loan revenues.

Asset Management revenues were down 13 percent with 15 percent drop in net management fees.

Investment Bank revenues also decreased 19 percent with 17 percent drop in Global Markets revenues and 30 percent drop in Global Banking revenues.

During the first quarter, the company recorded strong net new fee generating asset and net new money inflows in Global Wealth Management and Asset Management.

In Switzerland, UBS Group shares were trading at 17.50 francs, down 3.9 percent. In pre-market activity on the NYSE, the shares were trading at $19.81, down 3.7 percent.

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