UBS Group (UBS) to Post Q1 Earnings: What's in the Cards?
UBS Group AG UBS is scheduled to report first-quarter 2017 results on Apr 28.
The Swiss banking giant’s fourth-quarter 2016 net profit attributable to shareholders had plunged 22.2% year over year. Results included provisions for litigation, regulatory and similar matters, along with restructuring expenses. The company recorded improved profitability in its Investment Bank, Wealth Management Americas, Asset Management and Wealth Management units. However, profit at Personal & Corporate banking wing remained stable.
Notably, for the three-month period ended Mar 31, 2017, UBS gained just 1.8% on the NYSE, significantly underperforming 7.9% growth recorded by the Zacks classified Foreign Banks industry, reflecting investors’ concern amid a challenging operating environment, with low, sometimes even negative rate scenario and global economic slowdown. Management had warned that the underlying macroeconomic uncertainties will result in continued client risk aversion and low transaction volumes, though the company remains committed to the execution of its strategies.
Will the upcoming earnings release put further pressure on UBS stock? It depends largely on whether the company is able to report improved profitability this earnings season. Let's see what factors might have influenced the earnings report this time around.
Factors to Influence Q1 Results
Quarterly results may be affected by the continued Franc appreciation that resulted from the Swiss National Bank’s (SNB) moves last year, including removal of the EUR/CHF floor. As the Swiss economy largely depends on exports, the persistent strength of the Franc, with respect to other currencies, is likely to impact some of the counterparties within the domestic lending portfolio of UBS. This, in turn, may push UBS to record a higher level of credit loss expenses.
UBS’ profitability is likely to be hit by the lingering negative interest-rate environment which was adopted by the SNB in late 2014. Later in Jan 2015, SNB lowered the rate on bank deposits held at the SNB to -0.75%. While central banks of most countries aim to boost growth and inflation through negative interest rates policy, this keeps banks’ net interest income under pressure.
Management expects CHF100 million decline in first-quarter 2017 in net interest income as compared with 2016. In addition, a substantial increase in funding costs, related to achieving TLAC requirements is foreseen.
However, the Wealth Management division should benefit to some extent, given the company’s consistent focus on strategic initiatives to grow loans.
UBS, which had gradually shifted focus on the wealth management business, post crisis, to reduce dependence on more capital intensive investment banking business, remains confident of achieving its target for net new money growth.
During the first quarter, trading environment was decent as global financial markets experienced volatility due to several factors. The bank’s trading revenues are likely to improve primarily, driven by higher fixed-income trading. Moreover, trading in equities is likely to report upsurge due to increased client activities.
Further, revenues from advisory and underwriting are estimated to witness significant improvement, as increase in M&A activities, along with equity and debt underwriting is foreseen.
As UBS has been embroiled in several lawsuits and investigations, the company might have kept additional reserves for litigation expenses, which could dampen the bottom line to some extent. However, expense base may get some ease owing to UBS’ consistent cost-control efforts.
Amid several litigation issues and internal inefficiencies, this foreign bank has been striving hard through its restructuring initiatives that focus on building capital levels to achieve operational efficiency and reduce risk-weighted assets (RWAs).
UBS AG Price
UBS AG Price | UBS AG Quote
Currently, UBS currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here..
Among other foreign banks, Mitsubishi UFJ Financial Group, Inc. MTU, Itau Unibanco Holding S.A. ITUB and The Royal Bank of Scotland Group plc RBS are scheduled to report results on May 15, May 3 and Apr 28, respectively.
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