Category: Finance

Switzerland’s largest bank UBS has weathered multiple first-quarter headwinds, turning its best first-quarter net profit in over a decade. UBS reported Tuesday a net profit of $2.1 billion in the first quarter, exceeding expectations, showing the bank was able to steer a course through several challenges in the first quarter and posted its best first-quarter results since 2007.

The result improved on the $1.3 billion reported for the fourth quarter of last year and was better than the $1.8 billion booked during the first three months of 2021.

Switzerland’s largest bank accomplished this in the face of the Ukraine war, inflation showing no signs of abating anytime soon, and central banks that are tightening the loose-money spigots. «Our strong results today speak to our ability to accomplish our objectives regardless of the backdrop,» said UBS CEO Ralph Hamers.

UBS said it reduced its Russia exposure early and actively and had a direct country exposure of $400 million as of March 31 of 2022. It expects a firm-wide P&L negative impact of $100 million.

The bank said it is not conducting any new business in Russia or with Russia-domiciled clients. However, it will continue to monitor settlement risk on certain transactions with Russian bank and non-bank counter parties, which might result in unexpected increases in exposures.

Pre-tax profit was $2.7 billion, improving by one billion dollars from the fourth quarter result of $1.7 and bettering the comparative year-ago quarter of $2.3 billion.

Earnings per share were $0.61 in the first quarter, up from $0.38 in the fourth quarter of last year and higher than the $0.49 reported during the first quarter of 2021, the results showed.

Global wealth management (GWM) booked a pre-tax profit of $1.3 billion, with the unit reporting net new fee-generating assets of $19 billion in the first quarter compared to 36.2 billion in the same year-ago quarter. Total fee-generating assets were $3.1 trillion As of the first quarter of last year, the GWM unit no longer reports net new money every quarter, and will only disclose the figure in its annual report.

Earlier this month, finews.com reported that 2021 was a bumper year for Swiss banks attracting new money inflows. But this year, wealth and asset managers are facing geopolitical and economic uncertainty resulting from the ongoing war in Ukraine and inflation showing no sign of abating anytime soon. Add to the mix central banks that are starting to close the taps of easy money flowing into financial markets.

The investment bank’s division’s 126 percent pre-tax profit growth from the comparative quarter was mainly attributable to Archegos-related losses in the same quarter last year. Excluding that loss, revenues increased by 4 percent, or just over $100 million, primarily from increased revenues in equity derivatives, rates, and foreign exchange.

While the path of economic growth has become much more uncertain, UBS expects growth in economic activity to continue, but increased uncertainty could continue to affect client activity levels and asset prices. However, even as central banks are tightening policy to arrest rising inflation, the banks said that rising interest rates, notably the US dollar, are expected to lead to higher net interest income.

Switzerland’s two major banks are usually cautious about rating each other’s shares. But right now, UBS sees little potential in its rival. Credit Suisse’s share continued to lose value and they are now trading just above 7 Swiss francs ($7.3) after it made a warning earlier this week that it would report a first-quarter loss. There is little to suggest that the stock will recover in the foreseeable future, especially after CEO Thomas Gottstein spoke of 2022 as a transition year. Now, many bank analysts seem to be chiming in with the same view.

British investment bank Barclays lowered its price target for Credit Suisse shares from 7.50 francs to 7.00 francs on Thursday, with their banking specialist, Amit Goel, rating the stock as underweight, which ultimately can be interpreted as a recommendation to sell.

UBS banking analyst Daniele Brupbacher was a little less harsh on his employers’ rival, giving Credit Suisse shares a twelve-month price target of CHF 7.40 and rating the stock as neutral earlier this week. So while not advising to sell, he is advising against buying it even at such a low price.

When the two major Swiss banks rate each other, they usually do so rather cautiously. Although they are ultimately competitors, they also play a decisive role in shaping the Swiss financial center. And no one is interested in having just one big bank in the future.

In an interview earlier this year, UBS CEO Ralph Hamers said that it’s never a good thing when a competitor has problems because the reputation of all banks suffers as a result.

For decades, the business models of UBS and CS were quite similar, but have diverged over the past decade or so. UBS saw no need to repaint, merely touching up its success model, as former UBS Chairman Axel Weber liked to say. Credit Suisse has been laboring for years to make a new start without success, and scandal after scandal has beleaguered the bank.

This is reflected in the performance of Credit Suisse’s share price and the corresponding ratings of UBS. The last time UBS banking analyst Brupbacher gave his rival shares a buy rating was in April of last year. At that time, the stock was trading at 9.73 francs, and UBS had formulated a price target of 10.80 francs.

In December 2021, UBS downgraded Credit Suisse shares to neutral, mainly due to the ongoing turbulence surrounding the Greensill funds and the Archegos hedge fund, but also because then Chairman António Horta-Osório had not succeeded in giving the bank a new, credible strategy. UBS’s target price for Credit Suisse’s shares was 9.30 Swiss francs, cut again in February to 8.50 francs and now to 7.50.

It is quite clear. From now on, there will definitely be one financial center – two business models – and the two competitors will open up a new capital in Swiss banking history. While UBS pulls away, Credit Suisse will be hard-pressed to avoid announcing personnel changes when it presents its quarterly figures next Wednesday. That is the only real way it can credibly hold out the prospect of a new start.