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Should Investors Fret Over UBS Group's (UBS) Russian Exposure?
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Amid the Russia-Ukraine ongoing conflict, UBS Group AG (UBS - Free Report) has disclosed its $634-million exposure to Russia of the $20.9-billion total emerging market exposure (as of Dec 31, 2021) in its annual report filed with the Securities and Exchange Commission.
UBS’ direct country risk exposure to Russia comprises nostro and cash accounts balances, issuer risk on trading inventory within the Investment Bank segment, trade finance exposures in Personal & Corporate Banking segment, a loan in the Investment Bank segment with a non-Russian entity with facilities spread, globally, including Russia and the Commonwealth of Independent States and derivatives within the Investment Bank segment. These exposures have abated since 2021 end. Besides, net assets held in its Russian subsidiary (OOO UBS Bank) amounted to a net asset value of $51 million.
As of Mar 3, 2022, UBS Group’s exposure resulting from its dependence on the Russian assets as collateral on lombard lending and other secured financing in Global Wealth Management segment aggregated to $0.2 billion. As of the same date, the bank identified a small number of Global Wealth Management clients, subject to the recently imposed sanctions, with total loans outstanding amounting to less than $10 million. Per the filing, UBS’ market risk exposure to Russia as of the same date was limited.
UBS Group is also currently patrolling settlement risks on certain open transactions with the Russian banks and non-bank counterparties or Russian underlyings. This is because the introduction of exchange controls, sanctions or other measures may curb the bank’s competency to settle current transactions or realize on collateral, which may likely increase unexpected exposure.
UBS also underlined perils from cyberattack threats as well as the risk of not quickly identifying client activity, subject to any newly-introduced sanctions.
Per the Reuters article, in a letter to its shareholders, UBS chairman Axel Weber and chief executive Ralph Hamers said, “We are working to implement sanctions imposed by Switzerland, the US, the EU, the UK and others – all of which have announced unprecedented levels of sanctions against Russia and certain Russian entities and nationals.”
Following Russia's invasion of Ukraine, the numerous financial and economic sanctions imposed by the United States, the United Kingdom, Switzerland and the European Union on Russia could dent the value of Russian assets held by international banks. Moreover, the negative impacts of the ongoing geopolitical tensions could further deteriorate the regional and global financial market conditions, affecting the economy at large. This could deal an additional blow to UBS Group’s financials.
Our Take
UBS Group anticipates indirect impacts if the Russia-Ukraine conflict is prolonged. Nonetheless, given its limited exposure to Russia as well as its robust fundamentals, the extent of the exposure is likely to have only a miniscule effect on its financials.
UBS’ efficiency programs are expected to free up resources to make its investments support growth and enable it to service clients with greater dexterity, improving quality and speed to market. Additionally, a strong capital position and opportunistic expansion strategies will continue aiding UBS Group's profitability.
Hence, investors should not worry about the geopolitical tensions weighing on UBS’ prospects in the long haul.
Shares of this currently Zacks Rank #3 (Hold) stock have lost 2.3% in the past six months compared with the industry’s fall of 5.5%.
Over the past year, shares of First Business have jumped 17.3%, while the stocks of CIB and PCB have rallied 31.8% and 31.2%, respectively.
Over the past 30 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised 3.4% upward, while the same for CIB has moved 21.7% north. Moreover, current-year earnings estimates for PCB Bancorp have moved 14.4% up from the past two months’ level.
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Should Investors Fret Over UBS Group's (UBS) Russian Exposure?
Amid the Russia-Ukraine ongoing conflict, UBS Group AG (UBS - Free Report) has disclosed its $634-million exposure to Russia of the $20.9-billion total emerging market exposure (as of Dec 31, 2021) in its annual report filed with the Securities and Exchange Commission.
UBS’ direct country risk exposure to Russia comprises nostro and cash accounts balances, issuer risk on trading inventory within the Investment Bank segment, trade finance exposures in Personal & Corporate Banking segment, a loan in the Investment Bank segment with a non-Russian entity with facilities spread, globally, including Russia and the Commonwealth of Independent States and derivatives within the Investment Bank segment. These exposures have abated since 2021 end. Besides, net assets held in its Russian subsidiary (OOO UBS Bank) amounted to a net asset value of $51 million.
As of Mar 3, 2022, UBS Group’s exposure resulting from its dependence on the Russian assets as collateral on lombard lending and other secured financing in Global Wealth Management segment aggregated to $0.2 billion. As of the same date, the bank identified a small number of Global Wealth Management clients, subject to the recently imposed sanctions, with total loans outstanding amounting to less than $10 million. Per the filing, UBS’ market risk exposure to Russia as of the same date was limited.
UBS Group is also currently patrolling settlement risks on certain open transactions with the Russian banks and non-bank counterparties or Russian underlyings. This is because the introduction of exchange controls, sanctions or other measures may curb the bank’s competency to settle current transactions or realize on collateral, which may likely increase unexpected exposure.
UBS also underlined perils from cyberattack threats as well as the risk of not quickly identifying client activity, subject to any newly-introduced sanctions.
Per the Reuters article, in a letter to its shareholders, UBS chairman Axel Weber and chief executive Ralph Hamers said, “We are working to implement sanctions imposed by Switzerland, the US, the EU, the UK and others – all of which have announced unprecedented levels of sanctions against Russia and certain Russian entities and nationals.”
Following Russia's invasion of Ukraine, the numerous financial and economic sanctions imposed by the United States, the United Kingdom, Switzerland and the European Union on Russia could dent the value of Russian assets held by international banks. Moreover, the negative impacts of the ongoing geopolitical tensions could further deteriorate the regional and global financial market conditions, affecting the economy at large. This could deal an additional blow to UBS Group’s financials.
Our Take
UBS Group anticipates indirect impacts if the Russia-Ukraine conflict is prolonged. Nonetheless, given its limited exposure to Russia as well as its robust fundamentals, the extent of the exposure is likely to have only a miniscule effect on its financials.
UBS’ efficiency programs are expected to free up resources to make its investments support growth and enable it to service clients with greater dexterity, improving quality and speed to market. Additionally, a strong capital position and opportunistic expansion strategies will continue aiding UBS Group's profitability.
Hence, investors should not worry about the geopolitical tensions weighing on UBS’ prospects in the long haul.
Shares of this currently Zacks Rank #3 (Hold) stock have lost 2.3% in the past six months compared with the industry’s fall of 5.5%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks in the banking space are First Business Financial Services (FBIZ - Free Report) , Bancolombia S.A. (CIB - Free Report) and PCB Bancorp (PCB - Free Report) . At present, both CIB and FBIZ flaunt a Zacks Rank #1 (Strong Buy), while PCB carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the past year, shares of First Business have jumped 17.3%, while the stocks of CIB and PCB have rallied 31.8% and 31.2%, respectively.
Over the past 30 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised 3.4% upward, while the same for CIB has moved 21.7% north. Moreover, current-year earnings estimates for PCB Bancorp have moved 14.4% up from the past two months’ level.