Q3 net income was $2.5 billion vs. a consensus for $1.4 billion
by Myriam Balezou
UBS Group AG Chief Executive Officer Sergio Ermotti sought to alleviate concern over the bank’s involvement in the bankruptcy of US auto parts supplier First Brands, as he presented a set of results that beat analyst estimates.
The Zurich-based bank said net income in the third quarter of the year was $2.5 billion, compared with a consensus for $1.4 billion. The result was supported by a release of provisions related to the settlement of a tax evasion case in France and a legacy Credit Suisse legal issue. Inflows at the key wealth management unit jumped to $38 billion.
UBS operates funds through which investors had been exposed by around $500 million to the First Brands bankruptcy — raising questions over risk management. Ermotti countered such claims, arguing that investors knew they were getting into a high-yield strategy and that jitters in the market over financial firms’ involvement were overdone.
“It’s not the first time that somebody goes bust or Chapter 11, and it doesn’t mean every time that somebody has done something wrong,” Ermotti said in an interview with Bloomberg Television’s Guy Johnson. “So I think that there is a little bit of a witch-hunting.”
UBS shares gained as much as 4% after the open in Zurich on Wednesday, up 1.65% at 31.48 Swiss francs ($39.57) at 9:23 a.m. “All divisions showed better than expected trends with the investment bank meaningfully above consensus,” RBC Capital Markets analyst Anke Reingen wrote in a note.
Underlying revenue at the investment bank gained 23% as trading and advisory enjoyed a surge in deal-making that has also buoyed Wall Street peers. The unit delivered its highest quarterly revenues on record, at $3.24 billion, driven by gains in both Global Banking and Global Markets. Still, equity trading growth lagged US peers, with 15% gains where US banks saw an aggregate 22% growth on year, according to Bloomberg Intelligence.
Inflows in wealth management were driven by a strong Asia performance. The Americas wealth result was dented by an outflow of $9 billion, amid an up-tick in departures of wealth managers in the region. UBS has raised the payouts earned by its wealth advisers in the US, with the aim of retaining and hiring personnel at a time of intense competition for talent, Bloomberg has reported.
Swiss Changes
A bigger issue for UBS than first brands is the ongoing standoff with the Swiss political establishment over demands for substantially higher capital. The lender is facing years of uncertainty as legislation makes its way through parliament, with a worst-case outcome leading to a requirement $26 billion higher.
Last week UBS reshuffled its leadership and proposed Markus Ronner to succeed Lukas Gaehwiler as vice chair. Michelle Bereaux will take on the role of group head compliance and operational risk control, while current head of non-core unit Beatriz Martin is becoming group chief operating officer.
Ermotti has previously guided that he will serve as CEO until the integration of Credit Suisse is complete, around the end of 2026 or early 2027. But the need to tussle with Swiss politicians over the coming years to fend off what UBS has characterized as an “extreme” capital demand means that some senior figures would welcome Ermotti staying longer, Bloomberg reported earlier this week.
In its outlook, UBS said that fourth quarter activity in the investment bank is likely to normalize compared with a strong period a year ago. Valuations are elevated across most asset classes, it said, and investors are increasingly focused on hedging downside risks.
Earlier this month, a Swiss court delivered a ruling that added fresh legal uncertainty to UBS. In a surprise move, the court said Switzerland’s 2023 order to wipe out some $17 billion in AT1 convertible bonds issued by Credit Suisse was unlawful. UBS said Wednesday that it plans to appeal that decision.
“In our view there should be no liability in this matter,” the bank said in a Q&A it published on its website on Wednesday. “As a consequence, there is no need to record a provision.”
UBS has launched a previously announced share buyback of as much as $2 billion for the second half of this year, remaining on track for a total this year to $3 billion. The bank said its CET1 ratio at the end of this year will reflect accruals for buybacks in 2026.
Copyright Bloomberg News
