UBS AG, Switzerland’s biggest bank, and Deutsche Bank AG, Germany’s largest, reported second-quarter profits that surpassed analysts’ estimates, driving European financial shares higher.
UBS posted net income of 2.01 billion Swiss francs ($1.91 billion), its third straight profit, on a rebound at the investment bank. Deutsche Bank said earnings rose 6.4 percent from a year ago to 1.16 billion euros ($1.51 billion), buoyed by retail and transaction banking.
Oswald Gruebel, the chief executive officer of UBS, is rebuilding the investment bank following record losses during the credit crunch. The unit earned 1.31 billion francs in the quarter, above analysts’ 759 million-franc estimate. At Deutsche Bank, the so-called stable businesses of global transaction banking, consumer lending and asset and wealth management posted their highest combined pretax profit in two years.
“It appears the European banks have done slightly better than their U.S. counterparts,” said Henk Potts, who helps oversee about $235 billion at Barclays Stockbrokers Ltd. in London. Even so, the “underlying outlook remains one of caution,” he said.
UBS rose as much as 9.9 percent, the biggest gain since April 14, and traded 9.8 percent higher at 17.23 francs by 11:43 a.m. in Zurich. Deutsche Bank climbed 3.1 percent to 51.94 euros in Frankfurt trading. The 54-company Bloomberg Europe Banks and Financial Services Index advanced 3.5 percent.
Smaller Trading Decline
The investment bank of UBS reported a smaller decline in trading revenue from the first quarter than the average of its competitors as the European sovereign debt crisis made clients reluctant to trade.
The unit generated 3.07 billion francs from trading stocks, currencies, bonds and commodities in the second quarter. The 10 percent decline from the first three months of the year compares with the average 34 percent drop reported by Credit Suisse Group AG, Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley and Bank of America Corp.
“These results imply that UBS has, contrary to our thesis, managed to turn around the investment bank,” said Dirk Hoffmann-Becking, a London-based analyst at Sanford C. Bernstein, who has an “underperform” rating on UBS. “The performance appears materially more robust than its peers.”
Withdrawals from UBS’s wealth management units slowed to 8.1 billion francs in the second quarter from 15.4 billion francs in the first. Rich clients pulled a net 243.5 billion francs in the two years through March following UBS’s credit- crisis losses, pressure on Swiss banking secrecy and departing client advisers.
“Our portfolio of businesses is increasingly able to generate competitive returns in a variety of market conditions, and our risk management framework has proven robust,” Gruebel, 67, said in the statement. “I remain confident in our future and I firmly believe that we have the right strategy in place.”
The wealth management and Swiss bank division reported a 21 percent increase in pretax profit to 1.13 billion francs, beating analysts’ estimates for 1.08 billion francs, while wealth management Americas had a pretax loss of 67 million francs on restructuring charges of 146 million francs.
UBS is “about to see the turning point” in client-fund flows in the Americas, Chief Financial Officer John Cryan told journalists on a conference call. Outflows from the wealth management and Swiss bank division related mainly to cross- border assets booked in Switzerland, he said.
At Deutsche Bank, sales and trading at the investment bank, run by Anshu Jain, fell 15 percent from a year earlier and 42 percent from the first quarter. Earnings from Deutsche Bank’s retail unit rose more than four-fold to 233 million euros, the most since the collapse of Lehman Brothers Holdings Inc. in 2008, as loan losses shrank. Pretax profit from transaction banking more than doubled to 478 million euros, while asset and wealth management returned to a profit.
“The stable businesses made very pleasant progress,” said Manfred Jakob, an analyst at SEB AG in Frankfurt.
Chief Executive Officer Josef Ackermann, 62, has been seeking to reduce dependence on the investment bank by making acquisitions, including commercial banking operations of ABN Amro, private bank Sal. Oppenheim Group, and a stake in Deutsche Postbank AG. The investment-banking unit generated more than 90 percent of overall earnings in the first quarter.
Pretax profit at the division fell 5.3 percent to 779 million euros in the second quarter from a year earlier and 70 percent from the previous three months. Earnings missed the 1.12 billion-euro estimate of analysts.