US big banks recently weighed in on this earnings season towards the financial industry. European banks were witnessed reporting sharp declines in earnings late last month, including with their US rivals. UBS issued reports today, citing almost same headwinds in line with other the banking industry of Europe and US.
CEO Sergio Ermotti said, “We definitely entered into a kind of new territory in the first quarter…The first quarter was an environment that had only one constant -- risk aversion from January 1 until the end of the quarter.”
Meanwhile, UBS Group AG has not met analysts’ forecasts in the first-quarter earnings, according to sources. The profits of the bank has seen dropping nearly 64% for the quarter. Net income posted 707 million Swiss francs, compared to 1.98 billion francs in the same quarter in the prior year.
The bank’s net profit severely declined, fueled by 41% drop in the Zurich-based lender in pretax profit in its Wealth Management – flagship business.
Conversely, it boosts more money than what analysts had forecasted. The wealth management segment has seen worth 15.5 billion Swiss francs in net new money in the first quarter, and a 6.5% growth on an annual basis.
The investment bank at USB also witnessed a decline in operating profit for the three-month period ending March by about 67% year-over-year (YoY), missing analyst forecast. Investor client services which include the trading unit has seen a decline in revenue about 25%.
Considering the recent factors of this season, it is essential to provide highlights in all the headwinds that affected the banking industry. Financial earnings were severely affected by concerns on sluggish emerging economies, as well as commodity prices continued dropping. It has led investors’ sentiment to decline during the first three months of this year, along with a low client activity.
Furthermore, banks were hardly operating and profits remained flat as low interest rates were prolonged at the same time regulations were currently stricter.
It was reported that HSBC Holdings also issued financial earnings today, UBS said, "negative market performance, substantial volatility, as well as underlying macroeconomic and geopolitical uncertainty, led to more pronounced client risk aversion and abnormally low transaction volumes in the first quarter."
The UBS Tier-1 ratio decreased by 15%, fueled by a slight increase in its leverage ratio of 5.4%, previously at 5.3%.
Many of the analysts that covering UBS remained bullish on the stock, according to sources. Among 37 analysts, 17 of which recommends a Buy rating, 16 issued a Hold rating, and four affirmed a Sell rating.
The 12-month mean price objective of the stock settled at $19.25. Amid today’s pre-market session, the UBS Group slightly increased.
Earnings Results Decline
UBS issued its first-quarter of this year’s net profit driven by stakeholders of CHF 707 million, which declined about 64.2% on a year-over-year basis. The results were affected by a 53% year-over-year drop in net trading income, along with a drop of 7% in net fee and commission income, slightly offset by an increase of 5% in net interest income.
It was reported that the quarter includes net charge provisions for litigation, along with regulatory and same matters of CHF 39 million.
The adjusted operating income of the USB Group declined by about 13.6% from the prior-year quarter to 7.0 billion. Meanwhile, the adjusted operating expenses were cut to 3.4% year-over-year to CHF 5.6 billion.
The bank has attained cost savings of CHF 1.2 billion, compared with the quarter of 2013. Additionally, the bank is expected to complete CHF 2.1 billion in net cost reductions estimated by the end of 2017.