UBS Group AG posted a surprise jump in profit as wealth management fees soared the most in almost three years and the firm followed Wall Street rivals in seizing on the deal boom. 

The Zurich-based bank topped expectations on most key metrics, including investment banking pre-tax profit that was almost double what analysts had predicted. At the key wealth management business, surging client activity led to a 23 per cent increase in recurring fee income and almost US$19 billion of net new fee-generating assets.

Chief Executive Officer Ralph Hamers has consistently posted better-than-expected profit since taking over last year, even as investors wait for his broader plans for making Switzerland’s largest bank more digital and other strategic priorities. The Swiss bank has also kept investors in the dark on financial targets, pledging to give new goals on Feb. 1 after UBS surpassed most of its previous aims.

Ralph Hamers, chief executive officer of ING Groep NV, pauses during a panel discussion at the Markets for Europe conference in Berlin, Germany, on Thursday, Feb. 27, 2020. Euro-area economic confidence unexpectedly increased this month, indicating the bloc was gaining momentum before Italy took a blow from the spread of the coronavirus.

“The market and economic backdrop were broadly positive in the third quarter, although there has been some uncertainty recently,” Hamers said in a statement, referring to recent global debate around inflation, volatile markets and the Evergrande crisis.

UBS gained as much as 2.6 per cent in Zurich and was trading 2.4 per cent higher at 16.8 francs as of 9:07 a.m. local time.

While the third quarter was marked by “unusually high levels” of client activity, UBS warned that there may be a slowdown in the final quarter of the year. The bank also signaled that persistent economic, social and geopolitical tensions are raising questions about the sustainability of the recovery from COVID-19.

Hamers, who joined UBS from ING Groep NV, where he pushed the Dutch bank’s innovation, wants to use artificial intelligence to better pitch the world’s wealthy and rethink what markets the bank operates in, with a focus on investing more in APAC and Americas region. In a Bloomberg TV interview, Hamers said he’s planning a digital bank in the U.S. to tap mass affluent clients.

Highlights from UBS’s third-quarter earnings:

  • Pretax profit of US$2.9b vs estimates of US$2.09b
  • Net income of US$2.2b vs estimates of US$1.55b
  • Wealth management pretax profit of US$1.51b, vs. estimate of US$1.2b
  • Investment bank pretax profit of US$837m, vs. estimate of US$483.2 million
  • Wealth management cost-to-income ratio improved to 69.8 per cent
  • Fixed-income revenue declined 32 per cent, equities revenue gained 24 per cent

At the investment bank, earnings were driven by soaring demand for advice on areas such as mergers and acquisitions and IPOs, with global banking revenue 22 per cent higher. Markets revenue fell by 7 per cent, mirroring other Wall Street firms who were unable to match their performance in fixed income trading from a year earlier when the pandemic had whipsawed markets.

“While strong investment bank results were partly anticipated based on peers reporting, we see these operating results as strong across divisions,” JPMorgan Chase & Co. analysts led by London-based Kian Abouhossein said in a note to clients.

UBS, whose earnings are very sensitive to U.S. dollar rates, is facing a potential tailwind for future quarters as talk of increasing rates continues to build. A 100 basis-point increase in yield curves would boost net interest income by US$1.5 billion in its wealth and Swiss business, according to the bank’s previous financial statements.

Higher rates will be a welcome relief for the bank, which has had to contend with negative interest rates in its home country for years and which was exacerbated when rates decreased across the world.

The bank is still fighting a US$4.5 billion penalty in France. A delayed French court decision to December has moved any related litigation costs into the fourth quarter results. The CEO himself is still the subject of a Dutch probe into his role in a money-laundering case at his former employer, ING.