ZURICH (Reuters) - UBS (UBSG.S), the world’s largest wealth manager, on Tuesday signalled the possibility of resuming share buybacks later this year after generating more income than expected in the first six months and as it boosted capital during the coronavirus pandemic.
Second-quarter earnings of $1.23 billion overshot expectations thanks to much stronger-than-expected performance from its investment bank, and solid profit in its core wealth management division, helping to temper a pandemic-induced slump in its Swiss retail and corporate banking business.
Its capital position came in at the upper limit of its 12.7%-13.3% CET1 capital ratio target, as the bank recorded fewer than anticipated draw-downs and as operating profit helped it buoy core capital.
Long-time Chief Executive Sergio Ermotti, who is due to leave the bank in November, said the capital set the bank up well to pay the second half of its 2019 dividend - pushed back due to the COVID-19 pandemic - later this year and to consider resuming share buybacks in the fourth quarter.
Shares opened 2.1% higher as analysts pointed to strong capital and revenue, as well as manageable expectations for credit losses.
Europe’s first major lender to report second-quarter results, the bank’s focus on wealth management with smaller global investment banking and Swiss retail and corporate banking operations has helped place it on more resilient footing during the COVID-19 pandemic than many European peers.
But a 2% fall in second-quarter operating income, including $272 million in expectations for credit losses, fell short of the exuberant results posted by trading powerhouses in the United States, which benefited more squarely from a spike in market activity.
In the first quarter, trading activity amongst UBS’ wealthy clients had more than offset the risk of increased defaults, helping the bank to a 40% net profit rise.
While trading levels remained high in the second quarter, a drop in asset valuations during a market rout in March - which set the bank up for lower recurring fees, particularly with its U.S. wealth management clients - saw the bank’s core wealth management division post more modest growth from April through June.
Assets at the bank’s global wealth division climbed 11% in the quarter to stand at close to $2.6 trillion, driven by the market rally.
Its investment banking division grew pre-tax profit by 43% during the quarter, as trading more than offset a slowdown in its advisory business.
Revenue from foreign exchange, rates and credit trading surged 118% to $847 million, although the market unit’s larger equities unit stuttered, with income slipping 9% to $974 million.
Reporting by Brenna Hughes Neghaiwi; Additional reporting by Rachel Armstrong; Editing by Michael Shields and Christopher Cushing