) is scheduled to report its second-quarter 2014 results on
Tuesday, Jul 29.
In the last quarter, this foreign bank delivered impressive
earnings with 6.3% year-over-year increase in net income. While
prudent expense management, reduced net charges for provisions for
litigation, regulatory and similar matters along with own credit
gain on financial liabilities was reflected, lower net interest and
trading revenues were concerns.
Will UBS AG impress in the upcoming release after combating the
challenges the industry witnessed during the quarter? Let's see
what factors might have influenced the earnings report this time
Factors to Influence Q2 Results
After incurring loss in 2012, UBS AG swung to profit in 2013. The
company continued to exhibit efforts in strengthening its
fundamentals as it reported impressive first-quarter 2014 earnings.
The trend is expected to continue with limiting expenses and focus
on non-interest income, though margin compression and sluggish loan
growth might act as major dampeners.
A prolonged low interest rate environment is not expected to
reverse any time soon as central banks of most countries will
continue to prioritize growth over inflation control. This strategy
is sustainable as inflation is the concern of only a few emerging
economies. Thus, banks operating in a low interest rate environment
will not be able boost revenue through interest income.
Further, the Federal Reserve's stricter capital rules for foreign
banking organizations (FBOs) sizably operating in the U.S. could
cripple their balance sheet. We believe the latest enforcement by
The Swiss Financial Market Supervisory Authority (FINMA) will put
some pressure on the top line of UBS AG in the short run, but it
will make it sustainable in the long run.
Anyway, amid several litigation issues and internal inefficiencies,
this foreign bank is striving hard through restructuring
initiatives that focus on building capital levels to achieve
operational efficiency and reduce risk-weighted assets (RWAs).
Activities of UBS AG during the quarter were inadequate to win
analysts' confidence. As a result, the Zacks Consensus Estimate for
the quarter remained stable at 29 cents per share over the last 7
Our proven model does not conclusively show that UBS AG is likely
to beat the Zacks Consensus Estimate in the second quarter. That is
because a stock needs to have both a positive
and a Zacks Rank #1 (Strong Buy) or at least 2 or 3 for this to
happen. Unfortunately, this is not the case here as elaborated
The Earnings ESP for UBS AG is 0.00%. This is because both the Most
Accurate estimate and the Zacks Consensus Estimate stand at 29
UBS AG's Zacks Rank #3 (Hold), however, increases the predictive
power of ESP. However, we also need to have a positive ESP to be
confident of an earnings surprise call.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our model shows
that these have the right combination of elements to post an
earnings beat this quarter:
Banco Bradesco S.A. (
) has an earnings ESP of +2.63% and carries a Zacks Rank #3 (Hold).
It is scheduled to report its second-quarter results on Jul 31.
The earnings ESP for Banco Santander-Chile (
) is +12.96% and it carries a Zacks Rank #3 (Hold). The company is
scheduled to release its second-quarter results on Jul 31.
Royal Bank of Canada (
) has an earnings ESP of +3.62% and carries a Zacks Rank #2 (Buy).
It is scheduled to report its third-quarter fiscal 2014 (ended Jul
31) results on Aug 22.
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