UBS shares jump as earnings beat fuels boost to buyback
Gulf Times
A sign hangs above the entrance to the UBS Group headquarters in Zurich. UBS surged to the highest level in four years after the bank surprised analysts by pledging to buy back as much as $5bn of shares and posted ambitious profit and cost targets
UBS Group AG surged to the highest level in four years after the bank surprised analysts by pledging to buy back as much as $5bn of shares and posted ambitious profit and cost targets. Switzerland’s largest lender, which also reported fourth-quarter profit and revenue that beat estimates, gained as much as 7.5% to the highest level since early 2018 and was trading 7% higher at 18.29 francs in Zurich yesterday. The buyback was more than analysts had expected, while new goals for profitability and the cost-to-income ratio were seen as ambitious by analysts, particularly as a war for talent drives up banker salaries. Ralph Hamers, embarking on his second year as chief executive officer, is finally giving investors more insight into his plans for the bank, after a move last month to revamp the digital offering by buying robo-adviser Wealthfront for $1.4bn. The decision to upgrade the targets was also welcomed by analysts after his first full year on the job passed with mainly cosmetic fixes. “We expect focus will be on the 2022 capital return plans, which are much better than consensus expectations,” Citigroup analyst Andrew Coombs wrote in a note to investors. The bank “appears to have gained market share in fixed income and equities in the quarter.” Even at a time when Hamers is trying to focus staff on future plans, the lender is still fighting a $2bn tax penalty at the French supreme court and was hit by a $740mn fourth-quarter charge related to the case. The provision adds to the €450mn ($505mn) it’s already set aside. A French appeal court in December ordered the bank to pay €1.8bn in penalties after it upheld a 2019 finding that UBS illegally laundered funds by providing customers with services to hide assets from tax authorities. The new targets give stakeholders a yardstick for the CEO’s digital ambitions and the push into a lower segment of wealthy clients, after the bank had already previously cleared some of the old goals by a clear margin. In the third quarter, UBS’s return on CET1 capital was 20.8%, compared with a new target of 15-18%. The bank’s new cost-to-income ratio goal is for between 70% and 73%, compared with an earlier target of 75% to 78%. “For the second year in a row we achieved our targets, remained disciplined in our costs and saw strong contributions from all regions and divisions,” Hamers said in the statement. “Our updated targets focus on where we see the biggest opportunities.” Hamers’ first months in charge were cushioned by the unprecedented conditions of the pandemic, including soaring global wealth from rising stock market and property prices. The bank said that it expects higher client activity in the first quarter, compared with the fourth, while economic and geopolitical concerns may affect asset prices. The investment bank posted better-than-expected pre-tax profit of $713mn, buoyed by higher leveraged capital markets revenues and a 4% increase in equities. The much smaller foreign exchange and credit business also gained, compared with declines at some peers. About $657mn of the French tax provision was taken at the wealth management unit, impacting results at the business which saw a large increase in net new fee-generating assets. That unit may pose a challenge to Hamers’ ambitions to keep a lid on costs: operating expenses increased by 25%, in part because of higher financial advisor pay. UBS provided some rational for its investment in Wealthfront and push into the so-called mass affluent segment. The global pool of revenues for clients with assets between $1mn and $5mn is expected to increase 47% between 2020 and 2025 and millennial’s wealth should grow 5 times faster than baby boomers. UBS says the acquisition lets the bank tap into those potential future revenues. Hamers, on a conference call, said the bank will also consider other bolt-on acquisitions. UBS and peers in Europe aren’t immune to the rising costs of attracting and retaining talent as the boom in deal-making and demand for financial services ripples across Wall Street.