UBS AG, Switzerland’s biggest bank, reported the highest quarterly profit in almost three years as debt trading rebounded.
Net income was 2.2 billion Swiss francs ($2 billion) in the first quarter, after a loss of 1.98 billion francs a year earlier, Zurich-based UBS said today. That compares with the 1.99 billion-franc median estimate of 12 analysts surveyed by Bloomberg.
Chief Executive Officer Oswald Gruebel, who hired about 350 people to rebuild the debt unit in the past year, said UBS is “well positioned” to meet a goal of annual pretax profit of 15 billion francs in three to five years. Trading revenue jumped at the debt unit, the division responsible for most of the bank’s $57.2 billion in writedowns and losses in the credit crisis.
“It’s good that the debt business is making money again,” said Florian Esterer, who helps manage about $46 billion, including UBS shares, at Swisscanto Asset Management. “Restructuring seems to be bearing fruit at the investment bank. Turning around wealth management will probably take a while longer.”
UBS fell 86 cents, or 5.1 percent, to 16.18 francs in Zurich trading as financial shares across Europe tumbled on concern the rescue of Greece won’t contain the region’s debt crisis. UBS has risen 0.8 percent this year, while Credit Suisse Group AG, its largest Swiss competitor, has dropped 8.3 percent.
UBS’s earnings beat those of Credit Suisse for the first time since the third quarter of 2008.
Sovereign Debt Concerns
“We expect securities trading market activity in the second quarter to be generally in line with what we saw in the first quarter, although concerns relating to European sovereign debt provide a basis for some market uncertainty,” Gruebel and Chairman Kaspar Villiger said in a letter to shareholders. Wealth and asset management are expected to have a “gradual” improvement in results, they added.
UBS has “hardly any exposure” to Greece and the situation there is of “no concern to us directly at all,” Chief Financial Officer John Cryan told journalists on a conference call. “We’re sleeping very well at night in relation to sovereign debt.”
The investment bank, led by Carsten Kengeter, 43, and Alexander Wilmot-Sitwell, 49, returned to profit in the fourth quarter after nine quarters of losses. Net redemptions at the wealth management units amounted to 243.5 billion francs since March 2008.
The securities unit reported pretax profit of 1.19 billion francs for the first quarter as revenue from debt trading reached 2.17 billion francs, the highest level since the second quarter of 2006. The debt unit includes currency and commodities trading.
“Our new focus on diversified revenue streams and actively managed trading in the investment bank paves the way for us to post solid earnings in the future,” Gruebel said in a memo to staff today. “So far so good: our competitors also achieved good results in the first quarter. Having gotten our house in order, we now face the challenge of reaching our full potential.”
JPMorgan Chase & Co. and Bank of America Corp. beat analysts’ estimates for first-quarter earnings last month, helped by debt trading revenue. Goldman Sachs Group Inc. said revenue from fixed-income, currencies and commodities trading rose 13 percent in the first quarter to a record $7.39 billion.
UBS agreed last week to buy the Brazilian brokerage firm Link Investimentos for about $112 million, a year after selling its business in the country. The move “could also perhaps be viewed as a sign of returning confidence” at the investment bank, Matthew Clark, a London-based analyst at Keefe, Bruyette & Woods, wrote in a note.
UBS said today that net client withdrawals from its wealth management units amounted to 15.4 billion francs in the first quarter, down from 45.2 billion francs in the fourth. Asset management had net outflows of 2.6 billion francs in the first quarter, it said. UBS is suffering outflows after departures of client advisers, credit-crisis losses and the U.S. investigation into tax evasion by some American customers.
“Net new money outflows are expected to be at relatively moderate levels in the near term, although we continue to believe that the steps we have taken to deal with the root causes of the net outflows will be effective,” Gruebel, 66, and Villiger, 69, said in the letter.
Settlement of the U.S. lawsuit against UBS that sought information on as many as 52,000 American clients is endangered by a January ruling of the Swiss administrative court, which said the accord to disclose as many as 4,450 accounts wasn’t fully enforceable. To save the deal, the Swiss government is seeking parliamentary approval for the accord.
Client money flows may reverse by the end of this year, Cryan said in an interview with Bloomberg Television. “That would be the final indicator that we’ve turned the whole UBS around,” he said. “It is the one big item on our to-do list.”
The wealth management and Swiss bank unit reported a 7.8 percent increase in pretax profit in the first quarter to 1.16 billion francs, while wealth management Americas swung to a pretax profit of 15 million francs from a loss of 35 million francs a year ago. The asset management division posted a 137 million-franc profit, compared with a 59 million-franc loss.
Gross margin in international wealth management rose to 90 basis points in the first quarter from 85 basis points in the previous three months as the bank pushed through price increases for some services and increased lending.
The gain is “a beginning of a longer-term improvement” toward UBS’s goal of more than 100 basis points, Cryan said. A basis point is a hundredth of a percentage point.
UBS is “unlikely” to pay a dividend for this year, or may make just a “symbolic” payout, as it continues to rebuild capital, Cryan said. The bank is also “in no rush” to buy back toxic assets transferred to a Swiss National Bank fund as part of a government rescue of UBS, he said.