October 30, 2017 / 12:04 PM / 19 days ago

Fitch: UBS Posts Resilient 3Q17 Results

(The following statement was released by the rating agency) LONDON, October 30 (Fitch) Fitch Ratings says UBS Group AG (UBS) posted sound 3Q17 results, generating a 39% increase in reported operating profit compared with 3Q16 (16% higher if restructuring costs are excluded). This was equivalent to a satisfactory 7% return on equity. The results were achieved thanks to profit growth in Wealth Management (WM), Asset Management and the Investment Bank (IB), which more than compensated the small pre-tax profit falls in Wealth Management Americas (WMA) and domestic banking. Losses in the Non-core and Legacy portfolios narrowed materially, principally due to net litigation provision releases in 3Q17 compared with a CHF408 million litigation provision in 3Q16. Revenues held up well, thanks to higher transactional activity, notably in Asia Pacific, and higher recurring commissions reflecting improved mandate penetration in WM and WMA on higher assets under management (AuM, +5% qoq globally). Growth in net new money was led by Asia Pacific (4%) and Switzerland (5%), partly offset by outflows in emerging markets (1%) and the US (1%). This was despite the impact of the introduction of fees for large EUR-denominated deposits in 2Q17, which resulted in gross outflows (largely in Europe), more than offset by gross inflows. Revenues in the US also benefited from short-term US dollar interest rates, contributing to a rise in net interest income (20% of divisional revenue). Loans in wealth management globally remain an integral part of UBS's strategy, and continued to grow in 3Q17, generating higher net interest income in both divisions. The group's sensitivity to a 100bp interest rate increase remained positive (reflecting exposure to US dollar rates) but fell qoq. This partly reflected UBS's offering to clients to move their un-insured deposit balances to FDIC-insured accounts with other banks, which benefits the group's leverage ratio but negatively affects net interest income. This is offset by higher commission income. Negative interest rates in Switzerland contributed to Personal & Corporate Banking's performance, which saw a yoy pre-tax profit decline (9%). Nonetheless, excluding CHF21 million gains in 3Q16 from investments in associates, the division's underlying revenue was stable, as a 4% net interest income fall was broadly offset by improvements in net fee and transaction income. Income from deposits was higher, but this effect was smaller than that of higher funding costs and the low interest rate environment. Operating expenses grew by 3% yoy (7% excluding restructuring costs), partly reflecting investments in digital initiatives. Strong net new money inflows in Asset Management led to higher management fees, which combined with a 3% yoy fall in operating expenses (1% excluding restructuring) resulted in a 22% increase in pre-tax profit to CHF127 million (11% increase excluding restructuring). Net new money inflows of CHF8.5 billion in 3Q17 (excluding money market flows) consisted primarily of new passive mandates, which we expect will add to gross margin pressure. Net AuM margins of 8bp fell by 1bp yoy. UBS's IB division posted a resilient performance as pre-tax profit (excluding restructuring expenses, which were substantial in 3Q16) increased by 3% yoy to CHF352 million (67% rise in reported pre-tax profit). The division benefited from a strong performance in advisory and underwriting, particularly in equity capital markets where revenue more than doubled yoy. UBS's bias towards institutional investors and foreign exchange in fixed income trading resulted in a 37% decline in fixed income trading revenue in the context of low volatility and subdued client trading appetite. However, fixed income trading revenue represented only 19% of 9M17 divisional revenue and 6% of group revenue. The IB posted an adequate return on attributed equity of 15% in the quarter, in line with the bank's targets, also helped by resilient equities trading revenue (down 2% yoy), as UBS's strong structured products franchise helped equity derivatives revenue growth mitigate a fall in cash equities revenue. The bank's capital ratios remain solid and progressed towards meeting leverage-based gone concern requirements by 1 January 2020, currently the binding constraint. UBS's fully-loaded Basel III CET1 ratio increased by around 20bp qoq to 13.7% at end-3Q17, largely on retained earnings, while the CET1 leverage ratio was broadly unchanged qoq at 3.7%, reflecting higher leverage exposure partly due to larger liquidity balances. The bank guided it expects around CHF4 billion in risk-weighted asset inflation in 4Q17. Contact: Claudia Nelson Senior Director +44 20 3530 1191 Fitch Ratings Limited 30 North Colonnade London E14 5GN Luis Garrido, CFA Associate Director +44 20 3530 1631 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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