UBS Group AG (UBS) Q3 Earnings Impress on Lower Expenses

UBS Group AGUBS reported third-quarter 2018 net profit attributable to shareholders of CHF 1.2 billion ($1.2 billion), up around 31.7% from the prior-year quarter.

Results display rise in net fee and commission income (up 3% year over year) and lower net interest income (down 4% year over year). Further, the company's performance in the quarter reflects lower expenses.

The company recorded improved profitability in Investment Bank unit. However, performances in the Personal & Corporate banking, Corporate Center, Global wealth management and Asset Management units were disappointing.

Rise in Operating Income, Expenses Drop

Excluding the significant items, UBS Group AG's adjusted operating income increased 1.4% to CHF 7.2 billion ($7.3 billion) compared with the prior-year quarter.

Adjusted operating expenses edged down 1.8% year over year to CHF 5.5 billion ($5.6 billion) in the Sep-end quarter. Expenses included provisions for litigation, regulatory and similar matters of CHF 3 million ($3.05 million).

Business Division Performance

The Global wealth management division's adjusted operating profit before tax came in at CHF 1.0 billion ($1.02 billion), down 4% year over year. Higher net interest margins and income, elevated fee income, along with loan growth were fully offset by lower client activity in all regions. Net new money came in at CHF 13.5 billion ($13.7 billion) in the third quarter.

The Asset Management unit's adjusted operating profit dipped 16% year over year to CHF 129 million ($131.1 million) in the quarter under review, marred by lower performance fees, partly countered by reduced personnel costs.

Personal & Corporate banking division's adjusted operating profit before tax was down 3% year over year to CHF 422 million ($428.8 million). Elevated expenses and interest rate headwinds were partly offset by higher transaction-based and recurring net fee income. Notably, annualized net new business volume growth for personal banking was 4.5%.

The company's Investment Bank unit's adjusted operating profit before tax came in at CHF 507 million ($515.2 million), up 44% from the prior-year quarter. Higher advisory revenues and lower expenses primarily aided the results. Lower equity capital markets and corporate client solutions revenues were the undermining factors.

Corporate Center reported adjusted operating loss before tax of CHF 327 million ($332.2 million) compared with a loss of CHF 479 million witnessed in the year-ago quarter.

Strong Capital Position

As of Sep 30, 2018, UBS AG's invested assets were CHF 3.27 trillion ($3.33 trillion), up 7.2% year over year. Total assets came in at CHF 932.5 billion ($950.1 billion), climbing around 2.1% year over year.

UBS Group's phase-in common equity tier (CET) 1 ratio was 13.5% as of Sep 30, 2018, compared with 13.7% as of Sep 30, 2017. Furthermore, phase-in CET 1 capital increased 4.9% year over year to CHF 34.2 billion ($34.8 billion) as of Sep 30, 2018. Fully applied risk-weighted assets climbed 6% year over year to CHF 252.2 billion ($257 billion).


Though geopolitical tensions, rising protectionism and trade disputes persist, management believes global economic growth prospects and monetary policy normalization will continue to support markets.

The above-mentioned macro factors are expected to impact Global Wealth Management clients' transaction activity in the fourth quarter. Nonetheless, slightly increased levels of volatility and volumes will likely aid institutional business in the Investment Bank.

Funding costs associated with long-term debt and capital instruments issued as per regulatory requirements are projected to escalate in the ongoing quarter.

Continued momentum in businesses is estimated to report improved results in the current quarter, reflecting a diversified business model, as well as progress toward achievement of strategic and financial targets.

Notably, net interest income is expected to be up around $0.3 billion annually, from 2019. Further, management anticipates re-measuring DTAs in the United States and Switzerland in fourth-quarter 2018, and offer new guidance on deferred tax recognition.

Our Take

Results highlight a decent quarter for UBS Group AG, with its Investment bank unit displaying growth. The company managed to sustain profitability amid several headwinds encountered in the quarter. Nonetheless, prevailing pressure from the negative interest rate environment and regulatory expenses are concerns.

UBS Group AG Price, Consensus and EPS Surprise

UBS Group AG Price, Consensus and EPS Surprise | UBS Group AG Quote

Currently, UBS Group AG carries a Zacks Rank #4 (Sell).

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Foreign Banks

Deutsche Bank AG DB reported net income of €229 million ($267.4 million) in third-quarter 2018, which tanked 64.7% from year-ago quarter. Income before taxes plunged 45.8% to €506 million ($590.9 million). Lower revenues and higher expenses were the key undermining factors. Notably, net asset outflows were recorded during the quarter. However, strong capital position and lower provisions were the main positives.

Among other foreign banks, Itau Unibanco Holding S.A. ITUB will report September quarter-end results on Oct 29 and Credit Suisse CS on Nov 1.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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