UBS, Credit Suisse Boost Earnings After Strategic Shift -- Update
July 28 2017 - 5:57AM
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 despite an
uncertain outlook.
"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," said
Credit Suisse chief executive Tidjane Thiam, in an interview.
Credit Suisse's share price increased late morning Friday while
UBS's slid amid concerns over margins in its wealth management
division despite the overall profit rise.
The results Friday have broader 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 vigorous 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.
Credit Suisse's 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 "needs
clarification."
UBS meanwhile, "delivered a relatively soft/mixed set" of
results last quarter, said analysts at Baader Helvea Equity
Research. Although many of the numbers were in line with
expectations and wealth management saw net asset inflows, "the
market will once again raise concerns" about gross margins in
wealth management, they wrote.
UBS shares were down 3.7% late morning in Europe. Credit Suisse
shares were up 2%.
UBS and Credit Suisse have in recent years turned their focus to
wealth management and scaled back investment banking, which can be
quite 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.
The process at Credit Suisse has been rocky and exposed internal
divisions within the bank early on. The low point came one year
into Mr. Thiam's tenure when Credit Suisse shares dipped below 10
francs per share. The stock has recovered since, but at 15 francs
remains well below the level around 25 francs when Mr. Thiam took
the helm.
He said Credit Suisse's share performance is 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.
The bank 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.
"I never doubted the outcome, it was just unpleasant," said Mr.
Thiam, referring to the early phases of the restructuring.
The prospects for UBS, Credit Suisse and other Swiss banks are
key to the Alpine country's economy.
Although the number of banks has pared back sharply in the past
20 years, the financial sector still generates--directly and
indirectly--about 13% of Swiss gross domestic product, according to
a study by BAKBASEL.
Write to Brian Blackstone at brian.blackstone@wsj.com
(END) Dow Jones Newswires
July 28, 2017 05:42 ET (09:42 GMT)
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