Fitch: UBS's 2Q15 Results Show Benefits of Strong Franchise
UBS reported CHF1,635m pre-tax profit adjusted for fair value of own debt changes (CHF259m gain in 2Q15), net restructuring charges (CHF191m), gains on the sale of businesses (CHF67m) and an impairment of an intangible asset (CHF11m). Adjusted pre-tax profit in 2Q15 improved 37% yoy but fell 28% from the seasonally strong 1Q15. UBS generated a 9.6% adjusted return on tangible equity in the quarter, which is down from a strong 14.4% in 1Q15. We expect the group to continue to benefit from its clear strategy and strong franchise, but results in 2H15 will also reflect seasonally weaker quarters.
The group's announcement that it expects to revalue deferred tax assets (DTA) in the next two quarters, which could result in a net upward DTA revaluation of about CHF1.5bn, indicates that UBS expects continued improved profitability in its US operations, which mainly relate to its Wealth Management Americas (WMA)business division.
UBS's earnings have been affected by the low interest rates, which put pressure on net interest income. The group estimates that an interest rate increase would be positive for its net interest income and for regulatory capital under several yield curve scenarios. In the case of a 100bp parallel upward shift of the yield curve, the group estimates that net interest income would increase by about CHF800m in the first year, likely to be mainly driven by US dollar-denominated deposits.
UBS's wealth management segment reported CHF769m adjusted pre-tax profit in 2Q15, up 12% yoy (excluding litigation, regulatory and other provisions in 2Q14) and 10% down qoq. Net new money (NNM) fell to CHF1.8bn, but this largely reflected the bank's decision to reduce non-profitable client relationships, which included a large proportion of short-term deposits. Excluding these outflows, NNM stood at CHF8.4bn, equal to a 3.5% annualised growth rate. The outflow of less profitable client assets improved the group's regulatory liquidity coverage ratio and its leverage ratio. The adjusted gross margin on assets under management (AuM) remained broadly stable at 85bp.
WMA reported a 6% yoy decline in adjusted pre-tax profit to USD231m as results included USD92m charges for provisions for litigation and regulatory matters and legal fees. WMA's underlying profitability remained sound as operating income improved both yoy and qoq despite USD0.7bn negative NNM caused by record seasonal client income tax payments. We believe that WMA's performance could be affected by costs related to the group's activities in Puerto Rico, where UBS operates through UBS Trust Co. of Puerto Rico. At end-2Q15, WMA had CHF229m provisions for litigation, regulatory and similar matters on its balance sheet.
UBS's retail and corporate business division reported adjusted pre-tax profit of CHF414m for 2Q15, 13% higher than in the previous year but down 7% qoq. Net interest income declined qoq as low interest rates reduced income from the investment of the group's equity, and transaction-based revenue fell qoq following a strong 1Q15 with high client demand for FX trading. Loan impairment charges in the division remained minimal at CHF4m in the quarter, but the bank expects asset quality to deteriorate in coming quarters as the strong appreciation of the Swiss franc has put pressure on the domestic economy. We expect the effect on earnings to be easily manageable for the bank, however, given the generally good asset quality of its Swiss loan book.
The group's global asset management division, a smaller contributor to its earnings, reported CHF134m adjusted pre-tax profit in 2Q15, down 28% qoq, as performance fees declined and operating expenses increased.
The investment bank (IB) reported CHF617m adjusted pre-tax profit in 2Q15, 13% higher than in 2Q14 but 26% lower than in the strong 1Q15. Net revenue increased 4% yoy as equities trading generated 30% higher income, which compensated for weaker debt capital markets earnings in line with the trend for US peers in 2Q15.
UBS's corporate centre segment reported a CHF514m adjusted pre-tax loss in 2Q15, which partly reflected a CHF132m pre-tax loss from the non-core and legacy portfolio. This portfolio contributed CHF70bn to the group's leverage ratio denominator at end-1Q15, down from CHF93bn at end-2014.
In 2Q15, UBS's 2019 regulatory progressive capital buffer requirement was lowered to 4.5% from 5.4% on updated market share information. UBS's total capital requirement on a fully-applied basis will be 17.5% for 2019. UBS started to issue additional tier 1 (AT1) instruments from UBS Group AG, the holding company, in 2015, and announced that it would issue further AT1 debt in 3Q15. The group also announced that it would start to issue TLAC-eligible debt in 3Q15. Because of the Swiss withholding tax regime, this debt will be issued by a non-Swiss vehicle.
The group's funding and liquidity remained strong in the quarter, and UBS reported a 121% Basel III liquidity coverage ratio and a 104% estimated net stable funding ratio in 2Q15.
UBS made further progress in adapting its group structure to improve its resolvability. After having established UBS Group AG as the new bank holding company in 2014, the bank's domestic subsidiary, UBS Switzerland AG, which comprises the group's retail and corporate business division and its Switzerland-booked wealth management business, became operational in June 2015. Further steps in the group's reorganisation include the establishment of subsidiaries to house service functions, and the establishment of an intermediate holding company in the US, which is expected to become operational in 3Q16.
Комментарии