UBS AG, Switzerland’s biggest bank, reported first-quarter earnings that beat analyst estimates on higher revenues at the investment bank and in wealth management.
UBS rose as much as 7.3 percent in Swiss trading after reporting net income of 988 million Swiss francs ($1.05 billion), more than double the 412.3 million-franc mean estimate of nine analysts surveyed by Bloomberg.
Chief Executive Officer Sergio Ermotti announced 10,000 job cuts and the exit of most debt-trading businesses at the investment bank last year to concentrate UBS on money management and boost profitability. UBS is trading at a higher price relative to estimated earnings and book value than Credit Suisse Group AG as investors back the company’s focus on wealth management.
“UBS caught us by surprise,” said Christopher Wheeler, a London-based analyst at Mediobanca SpA with a neutral rating on the stock. “It seems very clear that the equities business was a blowout. And wealth management had very strong inflows.”
UBS jumped 6.5 percent to 16.73 francs by 9:05 a.m. in Zurich, bringing the gain over the past year to 48 percent. That compares with a 27 percent gain in the Bloomberg Europe Banks and Financial Services Index of 40 companies.
“It’s too early to talk about vindication or to declare victory, but I think I’m extremely pleased with the progress we made so far in executing our strategy,” Ermotti, 52, said in an interview with Bloomberg Television. “It’s working. I’m very pleased to see that clients are responding well to the strategy.”
The investment bank posted a 92 percent gain in pretax profit to 977 million francs, beating the average analysts’ estimate of 321 million francs. The unit, which aims for an annual pretax return on equity of more than 15 percent, reported that measure of profitability at 49.5 percent for the quarter, up from 17 percent a year earlier.
“The strategy of the new investment bank works with two-thirds less capital allocation than a year ago,” Ermotti said.
Revenue at the securities unit rose 21 percent from a year earlier to 2.79 billion francs, helped by gains in equities and equity capital markets, which rose 17 percent to 1.17 billion francs and more than doubled to 503 million francs, respectively. Equities revenue included a 55 million-franc gain from the sale of a part of UBS’s former proprietary stock-trading desk, which the bank closed last year, while equity capital markets business benefited from a large private transaction, the bank said.
“UBS is delivering on restructuring well ahead of schedule,” JPMorgan Chase & Co. analysts Kian Abouhossein and Amit Ranjan said in a note. They have an overweight rating on UBS.
Earnings in wealth management fell 28 percent to 664 million francs on higher costs, after profit a year ago benefited from a reduction in expenses related to changes in the company’s Swiss pension plan.
The division attracted 15 billion francs in net new money from investors in the quarter, the biggest amount since 2007, with all regions registering inflows. The gross margin, a measure of how much revenue UBS makes on assets, rebounded by 6 basis points from the last quarter of 2012 to 91 basis points. A basis point is a hundredth of a percentage point.
The bank saw the biggest inflows in Asia Pacific, with 5.5 billion francs, and in emerging markets, with 4.9 billion francs. The gross margin in those regions rose to 89 basis points from 74 basis points and to 95 basis points from 92 basis points, respectively.
“If you’re not in developing markets or Asia you’re not going to see growth,” said Wheeler.
UBS saw an increase in client risk appetite in the first few weeks of the year, Ermotti said in the interview, while the re-emergence of the European sovereign-debt crisis with the situation in Cyprus damped that.
Juerg Zeltner, who heads UBS wealth management outside the Americas, said in an interview earlier this month that the revamp of the investment process the company has been undertaking since hiring Chief Investment Officer Alexander Friedman is helping the bank compete globally. Zeltner plans to expand the onshore business in Europe and invest in hiring and technology in Asia and emerging markets, where he doesn’t exclude acquisitions.
UBS is educating client advisers to make sure investment recommendations are followed through and rolling out a new offering for clients, where they would be charged a fixed fee for advisory services rather than commissions on each transaction.
Profit at the wealth management Americas unit rose 22 percent to 234 million francs, as the business, run by Robert McCann, attracted 8.6 billion francs in net new money.
The retail and corporate division posted a 48 percent drop in pretax profit to 347 million francs, as year-earlier figures were boosted by changes in the Swiss pension plan, while asset management increased earnings 12 percent to 190 million francs.
UBS said its common equity ratio under fully-applied Basel III rules rose to 10.1 percent in the quarter from 9.8 percent at the end of the year. The bank aims to boost common equity to about 11.5 percent by the end of 2013.
Deutsche Bank AG, continental Europe’s biggest bank, said yesterday it will sell about 2.8 billion euros in new shares to boost its core tier 1 capital ratio to about 9.5 percent from 8.8 percent at the end of March. First-quarter earnings rose 19 percent, beating estimates.