UBS, Credit Suisse Boost Earnings After Strategic Shift -- 2nd Update
July 28 2017 - 9:47AM
Dow Jones News
By Brian Blackstone
ZURICH--Swiss banking giants UBS Group AG and Credit Suisse
Group AG posted better-than-expected profit last quarter,
suggesting their bets that managing money for well-heeled clients
is the right path for steady returns have paid off.
The stakes are particularly high for Credit Suisse, which began
this process years after UBS and has faced doubts in financial
markets on whether it could deliver.
"For me what is the most unique in our story is we have grown
more than the competition, cut costs more than most of competition,
raised capital, reduced risk and reduced legacy assets," Credit
Suisse chief executive Tidjane Thiam said.
Friday's results from Credit Suisse and UBS have broad
implications for Switzerland's banking sector, which makes up a
significant chunk of the country's economy and jobs. Beset for
years by negative interest rates, hefty legal settlements and bumpy
strategy changes, the sector appears to have turned a corner,
although a strong recovery isn't at hand yet.
UBS said its net profit rose 14% during the second quarter to
1.17 billion Swiss francs ($1.21 billion), as its wealth management
unit saw 7.5 billion francs in net new money. Credit Suisse posted
net income of 303 million francs, above market forecasts and
compared with a year-earlier profit of 170 million francs. Net new
assets increased by nearly 23 billion francs in the first half of
the year, pushing assets under management to a record high.
Meanwhile, on Monday, Swiss private bank Julius Baer said assets
under management grew to 355 billion francs midyear, up 6% from the
end of 2016.
Credit Suisse delivered a "strong set of results against weak
expectations," said analysts at Morgan Stanley, adding that the
outlook for the bank's risk-weighted assets needed
clarification.
Morgan Stanley said UBS's results were "fundamentally
strong...yet also against elevated expectations."
Credit Suisse shares were up 2.6% Friday afternoon in Europe.
UBS shares were down 2.1%, but had increased more in the run-up to
Friday's results.
UBS and Credit Suisse have turned their focus to wealth
management and scaled back investment banking, which can be
profitable, but is also volatile and costly to operate. UBS started
this process years ahead of Credit Suisse, which is midway through
a three-year strategic program launched by Mr. Thiam.
UBS CEO Sergio Ermotti said Friday that the institution had
"zero regret" for gearing its portfolio more toward wealth
management and maintaining a more focused and capital-light
investment bank. He cited independent experts who expect the
wealth-management industry to grow twice as fast as global gross
domestic product in the next five to 10 years.
And while operating revenues in UBS's investment banking unit
were flat last quarter, "anyone who says our investment bank is
dilutive is nuts," Mr. Ermotti said.
The refocusing process at Credit Suisse has been rocky and
exposed internal divisions. The low point came one year into Mr.
Thiam's tenure, when Credit Suisse shares dipped below 10 francs a
share. The stock has recovered to 15 francs, well below the level
around 25 francs when Mr. Thiam took the helm.
Mr. Thiam said Credit Suisse's share performance was typical of
banks doing major restructuring and that Credit Suisse had the
added headwind of starting the process during a rocky period in
financial markets. The capital hike also diluted share value.
"I never doubted the outcome, it [the early phases of
restructuring] was just unpleasant," Mr. Thiam said.
Credit Suisse lost 2.4 billion francs last year, mostly due to a
legal settlement with the U.S. over crisis-era mortgage-backed
securities. Still, its financial position was strong enough in the
spring for the bank to shelve plans to sell a chunk of its
profitable Swiss unit and raise capital by listing additional
shares instead. The Swiss unit posted a strong profit last
quarter.
The prospects for UBS, Credit Suisse and other Swiss banks are
key to the Alpine country's economy.
Although the number of banks has fallen sharply in the past 20
years, the financial sector still generates--directly and
indirectly--about 13% of Swiss GDP, according to a study by BAK
Basel.
One positive from the reduction in banks--particularly the
number of private banks--is there are fewer bankers chasing wealthy
clients. A recent study by UBS found that ultra-high-net-worth
investors were sitting on high cash piles, often in the range of
35% of their portfolios.
Changes in the banking sector "have separated the men from the
boys," Julius Baer CEO Boris Collardi said on Monday. "I think
there's going to be sustained growth for those that got it
right."
Write to Brian Blackstone at brian.blackstone@wsj.com
(END) Dow Jones Newswires
July 28, 2017 09:32 ET (13:32 GMT)
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