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UBS Group's (UBS) Q1 Earnings Decline Y/Y on Lower Revenues

Zacks Equity Research

UBS Group AG UBS reported first-quarter 2019 net profit attributable to shareholders of $1.1 billion, down 27% from $1.6 billion in the prior-year quarter.

Notably, the company’s performance in the quarter reflects lower expenses. However, results were affected by fall in net fee and commission income (down 13% year over year) and lower net interest income (down 22%).

The company recorded improved profitability in Asset Management unit and Personal & Corporate banking on an adjusted basis. However, performance of Corporate Center, Global wealth management and Investment Bank units was disappointing.

Operating Income Declines, Expenses Drop

UBS Group’s adjusted operating income decreased 12% to $7.2 billion from the prior-year quarter.

Adjusted operating expenses edged down 9% to $5.6 billion in the first quarter. Expenses included provisions for litigation, regulatory and similar matters of $8 million.

Business Division Performance

The Global wealth management division’s adjusted operating profit before tax came in at $873 million, down 21% year over year. Lower transaction-based revenues due to fall in client activity and decline in net interest income (NII) impacted the results. Net new money inflows were $22 billion in the first quarter.

The Asset Management unit’s adjusted operating profit rose 2% year over year to $109 million in the quarter under review, supported by higher performance fees along with reduced personnel costs.

Personal & Corporate banking division’s adjusted operating profit before tax was up 8% year over year to $389 million. Higher transaction-based income, NII growth and lower expenses resulted in the upswing. Notably, annualized net new business volume growth for personal banking was strong at 8%.

The company’s Investment Bank unit’s adjusted operating profit before tax came in at $221 million, down 64% from the prior-year quarter. Challenging market conditions affected both Equities and Corporate Client Solutions revenues. Notably, decline in expenses was a positive.

Corporate Center incurred adjusted operating loss before tax of $17 million in the quarter.

Strong Capital Position

As of Mar 31, 2019, UBS Group's invested assets were $3.3 trillion, up 7% sequentially. Total assets declined slightly to $956.6 billion in the quarter.

UBS Group’s phase-in common equity tier (CET) 1 ratio was 13% as of Mar 31, 2019, compared with 13.1% on Mar 31, 2018. Phase-in CET 1 capital decreased slightly year over year to $34.7 billion. Fully applied risk-weighted assets climbed 0.5% to $267.6 billion.

Outlook

As overall pace of growth has decreased due to the global slowdown, management expects economic growth and markets to recover and stabilize at varying speeds across regions and asset classes.

The company expects to benefit from its regional and business diversification. Higher invested assets are expected to boost recurring revenues in Global Wealth Management and Asset Management. Revenues are likely to benefit more if a sustained improvement in market activity and client sentiment across businesses is achieved.

Our Take

Results highlight a decent quarter for UBS Group, with its Asset Management and Personal & Corporate banking units displaying growth. The company managed to sustain profitability amid several headwinds encountered in the quarter. Nonetheless, pressure from the negative interest rate environment and global concerns posed key headwinds.

UBS Group AG Price, Consensus and EPS Surprise

UBS Group AG Price, Consensus and EPS Surprise | UBS Group AG Quote

Currently, UBS Group 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, Itau Unibanco Holding S.A. ITUB will report March quarter-end results on Apr 29 and Deutsche Bank Aktiengesellschaft DB on Apr 26. Mitsubishi UFJ Financial Group, Inc. MUFG will report results on May 21.

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