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UBS Group's (UBS) Q2 Earnings Rise Y/Y on Lower Expenses
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UBS Group AG (UBS - Free Report) reported second-quarter 2019 net profit attributable to shareholders of $1.39 billion, up nearly 1% from the prior-year quarter.
Notably, the company’s performance reflects lower expenses. Also, results were supported by rise in net fee and commission income (up 1% year over year), partially offset by lower net interest income (down 15%).
The company recorded higher profitability in Asset Management unit and Personal & Corporate banking on an adjusted basis. However, performance of Corporate Center, Global wealth management and Investment Bank units was disappointing.
Operating Income Declines, Expenses Drop
UBS Group’s adjusted operating income decreased 2% to $7.52 billion from the prior-year quarter.
Adjusted operating expenses edged down 2% to $5.74 billion in the second quarter. Expenses included provisions for litigation, regulatory and similar matters of $4 million.
Business Division Performance
Global wealth management division’s adjusted operating profit before tax came in at $886 million, down 12% year over year. Lower recurring net fee income due to margin compression and decline in net interest income affected results. Net new money outflows were $2 billion.
Asset Management unit’s adjusted operating profit rose 10% year over year to $135 million, supported by higher performance fees and rise in net management fees.
Personal & Corporate banking division’s adjusted operating profit before tax was up 11% year over year to $391 million. Higher transaction-based income, loan growth and lower expenses resulted in the upswing. Notably, annualized net new business volume growth for personal banking was strong at 4.4%.
The company’s Investment Bank unit’s adjusted operating profit before tax came in at $440 million, down 23% from the prior-year quarter. Challenging market conditions affected both Equities and FX, Rates & Credit revenues. Rise in expenses was another headwind.
Corporate Center incurred adjusted operating loss before tax of $65 million in the quarter.
Strong Capital Position
As of Jun 30, 2019, UBS Group's invested assets were $3.38 trillion, up 2% sequentially. Total assets increased 1% to $968.7 billion in the quarter.
UBS Group’s phase-in common equity tier (CET) 1 ratio was 13.3% as of Jun 30, 2019, compared with 13.4% on Jun 30, 2018. Phase-in CET 1 capital increased 2.4% year over year to $34.9 billion. Fully applied risk-weighted assets climbed 3% to $262.1 billion.
Outlook
As overall pace of growth has decreased due to the global slowdown, management expects political uncertainties and geopolitical tensions to affect the bank. Also, it noted that central banks across the world are indicating a reversal of monetary policy normalization and embarking on new stimulus measures.
A sharp drop in interest rates and expected rate cuts are likely to adversely impact net interest income. UBS Group’s regional and business diversification, along with higher invested assets benefiting recurring revenues, is expected to help offset this.
The company feels that an improvement in investor sentiment and higher market volatility could help to offset the typical third-quarter seasonality.
Our Take
Results highlight a decent quarter for UBS Group, with its Asset Management and Personal & Corporate banking units displaying growth. The company managed to sustain profitability amid several headwinds encountered in the quarter. Nonetheless, pressure from the negative interest rate environment and global concerns posed key headwinds.
Among other foreign banks, Itau Unibanco Holding S.A. (ITUB - Free Report) will report results on Jul 29 and Deutsche Bank Aktiengesellschaft (DB - Free Report) on Jul 24. Mitsubishi UFJ Financial Group, Inc. (MUFG - Free Report) will report on Aug 1.
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UBS Group's (UBS) Q2 Earnings Rise Y/Y on Lower Expenses
UBS Group AG (UBS - Free Report) reported second-quarter 2019 net profit attributable to shareholders of $1.39 billion, up nearly 1% from the prior-year quarter.
Notably, the company’s performance reflects lower expenses. Also, results were supported by rise in net fee and commission income (up 1% year over year), partially offset by lower net interest income (down 15%).
The company recorded higher profitability in Asset Management unit and Personal & Corporate banking on an adjusted basis. However, performance of Corporate Center, Global wealth management and Investment Bank units was disappointing.
Operating Income Declines, Expenses Drop
UBS Group’s adjusted operating income decreased 2% to $7.52 billion from the prior-year quarter.
Adjusted operating expenses edged down 2% to $5.74 billion in the second quarter. Expenses included provisions for litigation, regulatory and similar matters of $4 million.
Business Division Performance
Global wealth management division’s adjusted operating profit before tax came in at $886 million, down 12% year over year. Lower recurring net fee income due to margin compression and decline in net interest income affected results. Net new money outflows were $2 billion.
Asset Management unit’s adjusted operating profit rose 10% year over year to $135 million, supported by higher performance fees and rise in net management fees.
Personal & Corporate banking division’s adjusted operating profit before tax was up 11% year over year to $391 million. Higher transaction-based income, loan growth and lower expenses resulted in the upswing. Notably, annualized net new business volume growth for personal banking was strong at 4.4%.
The company’s Investment Bank unit’s adjusted operating profit before tax came in at $440 million, down 23% from the prior-year quarter. Challenging market conditions affected both Equities and FX, Rates & Credit revenues. Rise in expenses was another headwind.
Corporate Center incurred adjusted operating loss before tax of $65 million in the quarter.
Strong Capital Position
As of Jun 30, 2019, UBS Group's invested assets were $3.38 trillion, up 2% sequentially. Total assets increased 1% to $968.7 billion in the quarter.
UBS Group’s phase-in common equity tier (CET) 1 ratio was 13.3% as of Jun 30, 2019, compared with 13.4% on Jun 30, 2018. Phase-in CET 1 capital increased 2.4% year over year to $34.9 billion. Fully applied risk-weighted assets climbed 3% to $262.1 billion.
Outlook
As overall pace of growth has decreased due to the global slowdown, management expects political uncertainties and geopolitical tensions to affect the bank. Also, it noted that central banks across the world are indicating a reversal of monetary policy normalization and embarking on new stimulus measures.
A sharp drop in interest rates and expected rate cuts are likely to adversely impact net interest income. UBS Group’s regional and business diversification, along with higher invested assets benefiting recurring revenues, is expected to help offset this.
The company feels that an improvement in investor sentiment and higher market volatility could help to offset the typical third-quarter seasonality.
Our Take
Results highlight a decent quarter for UBS Group, with its Asset Management and Personal & Corporate banking units displaying growth. The company managed to sustain profitability amid several headwinds encountered in the quarter. Nonetheless, pressure from the negative interest rate environment and global concerns posed key headwinds.
UBS Group AG Price, Consensus and EPS Surprise
UBS Group AG price-consensus-eps-surprise-chart | UBS Group AG Quote
Currently, UBS Group carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other foreign banks, Itau Unibanco Holding S.A. (ITUB - Free Report) will report results on Jul 29 and Deutsche Bank Aktiengesellschaft (DB - Free Report) on Jul 24. Mitsubishi UFJ Financial Group, Inc. (MUFG - Free Report) will report on Aug 1.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
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