(Bloomberg) -- UBS Group AG reported fourth-quarter profit that beat expectations and announced plans to repurchase more than $5 billion of shares this year, as rising interest rates helped offset a slump in trading revenue and wealth-management fees.
The Zurich-based bank reported net income of $1.65 billion on Tuesday, aided by a 35% surge in interest income at the wealth management unit, the margin that the company makes on loans. Divisional results elsewhere mixed however, with the investment bank under-performing US peers and revenues down in asset management.
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While UBS has stood out among global peers in its confidence that large-scale job cuts seen at Goldman Sachs Group Inc and elsewhere can be avoided, it is still contending with the impact of a slowdown in client activity and volatile markets. Cost pressures playing out across the industry were particularly acute at the investment bank, while wealth management earnings fell as clients again held back from trading amid geopolitical uncertainty.
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UBS Chief Executive Officer Ralph Hamers said that inflation, the war in Ukraine and the impact of Covid in China had kept investors in wait-and-see mode during the quarter.
“We see positive news coming on China, we see positive news also on inflation,” Hamers said in an interview with Bloomberg Television’s Manus Cranny. “The next couple of weeks, from different sides, will give us much more data points to get a feel for should we be risk on or not.”
UBS shares were down 3.5% at 10:54 a.m. in Zurich. Analysts at Jefferies International Ltd and JPMorgan Chase & Co. called the results “mixed,” focusing on higher costs and lower revenues at the investment bank.
The bank increased the dividend for 2022 to $0.55 per share.
UBS’s investment banking unit posted $1.68 billion in revenue in the fourth quarter, down 24% from a year ago. Operating expenses increased 3% on higher variable pay, while the cost-to-income ratio jumped more than 24 percentage points. Revenue in advisory and capital markets slumped 52% in the quarter, broadly in line with Wall Street peers.
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While rich clients are continuing to bring assets for UBS to manage, on average they were less active in seeking trading and investment services against the uncertain market backdrop. Revenues at the key wealth management unit declined 5% from the previous year, driven partly by transaction-based income which fell 19% in the quarter.
UBS has said it has benefited as clients transferred assets away from struggling Swiss rival Credit Suisse Group AG, in particular during the fourth quarter amid a crisis of confidence at the Zurich competitor. Credit Suisse saw an unprecedented $88 billion in outflows in just a few weeks from the beginning of October, underlining ongoing concerns over the lender’s restructuring efforts.
At UBS, question marks remain over the wealth-management strategy in the US, after Chief Executive Officer Ralph Hamers’ signature push into a broader wealth segment was abandoned last year.
Wealth Flows
Hamers faced a major setback in September when the bank announced it was pulling out of a deal to buy US robo-advisor Wealthfront. Instead, UBS has retrenched, saying it would focus on its traditional very high net worth customer base. The bank plans to offer more traditional banking services to its wealthy American clients. The Swiss bank will also set targets for its expansion in wealth management in the US, according to chairman Colm Kelleher.
On Tuesday, Hamers said that over time the bank can be in the top three wealth managers in the US.
“We don’t have the same home market that some of our peers have, but we are playing a different game. We do wealth management; others do wealth management on top of other things,” he said.
UBS is also seeking to expand its operations in the Middle East with a particular focus on wealthy Indians living in the region. Earlier this month, the bank hired a group of private bankers from Credit Suisse Group AG in Dubai to focus on its business that caters to the diaspora.
The Swiss bank saw significant inflows into its Asian wealth management business over in the last three months of 2022, as rich customers flee its biggest rival. Credit Suisse clients concerned over the turmoil the bank has been experiencing are approaching UBS as an alternative for managing their wealth.
UBS has said it expects a boost in its China business in the second half of the year, as the country moves away from a zero-Covid policy and reopens the economy.
In asset management, revenues fell 31% from a year earlier with management fees down 25% on market performance and currency effects, the bank said. The cost to income ratio also rose in the unit, by 21.5 percentage points.
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“Expect higher interest rates to positively affect net interest income, especially for the Swiss franc and euro,” analusts at JPMorgan including Kian Abouhossein wrote in a note. “The easing of Covid-19 related restrictions in Asia Pacific is expected to contribute to generally more positive sentiment in that region, which expect to translate into higher client activity levels over time.”
--With assistance from Manus Cranny.
(Updates with shares in sixth paragraph)
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