UBS's Focus on Wealthy Clients Cushions Against Losses--2nd Update
July 21 2020 - 9:42AM
Dow Jones News
By Margot Patrick and Pietro Lombardi
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.
UBS shares rose 3% Tuesday, along with a broader rise in the
Euro Stoxx bank index. Deutsche Bank's shares were flat.
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.
--Patricia Kowsmann contributed to this article.
Write to Margot Patrick at margot.patrick@wsj.com and Pietro
Lombardi at Pietro.Lombardi@dowjones.com
(END) Dow Jones Newswires
July 21, 2020 09:27 ET (13:27 GMT)
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