By Margot Patrick and Patricia Kowsmann 

UBS Group AG said it could start buying back stock again later this year despite the shadow over markets from the coronavirus pandemic.

The Swiss bank reported higher credit losses for the second quarter, at $272 million, but said net profit fell only 11% to $1.23 billion, a better performance than at some large U.S. banks, where credit charges reflecting a deteriorating economy wiped out more than half their quarterly profits. The bank, whose main business is wealth management, said it expects credit losses to remain elevated but to be lower in the second half than in the first six months of 2020.

As at several U.S. rivals, heavy trading by clients boosted volumes in UBS's markets business in the second quarter. Investment bank pretax profit rose 43% from the second quarter last year.

Separately, Deutsche Bank AG said Tuesday that its second-quarter results would come in slightly above the expectations of analysts, who had estimated a EUR109 million loss.

The German lender also said its core Tier 1 ratio, a key measure of a bank's balance-sheet strength, increased to 13.3% as of late June from 12.8% in late March. The bank attributed the rise to a drop in loans since many clients had repaid credit facilities they tapped in March to help them navigate the pandemic.

Still, the better-than-expected numbers failed to impress investors. A likely second-quarter loss, even as several banks have been reporting booming revenue from trading and fundraising for clients, will make it trickier for the bank to break even this year, following a EUR5.3 billion loss last year.

Analysts and investors have long questioned the bank's ability to turn profitable in a negative interest-rate and highly competitive German market. The lender is undergoing deep cost cuts, but questions remain on whether that will be enough.

Deutsche Bank's shares fell over 4% Tuesday, while UBS's rose 2.6% along with a broader rise in the Euro Stoxx bank index.

At UBS's key wealth-management business, pretax profit rose 1% as revenue grew in Asia and Europe but fell in the U.S. because of a lower asset base there at the start of the quarter to collect fees on.

UBS made changes to the wealth division in January under co-chiefs Tom Naratil and Iqbal Khan to streamline processes and lend more to rich individuals and family offices.

Heavy trading by clients boosted volumes in its markets business, pushing pretax profit in its investment bank up 43% from the second quarter of 2019. Pretax profit rose 1% at the bank's key wealth-management business, which accounted for $64 million in second-quarter loan charges.

UBS Chief Executive Sergio Ermotti on Tuesday said conditions were challenging but that its business model weighted toward wealth management has been resilient. The majority of UBS's lending is either to the global rich or to households and companies in Switzerland, in contrast to rivals in the U.S. who have had to take charges against their large exposure to American consumers and companies as the economic outlook worsens.

The second-quarter figures beat analysts' expectations of a $973 million profit and credit losses of $256 million.

UBS is among the first European banks to report results. Last week, U.S. giants JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. took $28 billion in bad loan charges to prepare for the pandemic's effects on the financial health of its consumer and corporate clients as short-term government bailout programs come to an end.

"Switzerland's effective crisis management measures will help it withstand this shock to the economy," UBS said. It said its continuing actions to improve net interest income, such as lending more to rich customers, should partly offset negative effects from current market conditions.

The bank said it isn't bound by any restrictions on distributing capital to shareholders, in contrast with the U.S. and elsewhere in Europe where banks were told to stop paying dividends or buying stock to conserve capital.

Write to Margot Patrick at margot.patrick@wsj.com and Patricia Kowsmann at patricia.kowsmann@wsj.com

 

(END) Dow Jones Newswires

July 21, 2020 13:11 ET (17:11 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
Deutsche Bank Aktiengese... (NYSE:DB)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Deutsche Bank Aktiengese... Charts.
Deutsche Bank Aktiengese... (NYSE:DB)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Deutsche Bank Aktiengese... Charts.