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UBS Group's (UBS) Q3 Earnings Fall Y/Y on Lower Revenues

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UBS Group AG UBS reported third-quarter 2019 net profit attributable to shareholders of $1.05 billion, down nearly 16% from the prior-year quarter.

The company’s performance was affected by slight rise in expenses. Also, results were negatively impacted by fall in net fee and commission income (down 1% year over year) and lower net interest income (down 8%).

The company recorded higher 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 Rise

UBS Group’s adjusted operating income decreased 3.2% to $7.13 billion from the prior-year quarter.

Adjusted operating expenses rose 1.3% to $5.67 billion in the third quarter. Expenses included provisions for litigation, regulatory and similar matters of $65 million.

Business Division Performance

Global wealth management division’s adjusted operating profit before tax came in at $919 million, down 2% year over year. Lower recurring net fee income due to margin compression and decline in net interest income affected results. Net new money inflows were $15.7 billion.

Asset Management unit’s adjusted operating profit rose 6% year over year to $135 million, supported by rise in net management fees. Also, invested assets rose to $858 billion.

Personal & Corporate banking division’s adjusted operating profit before tax was down 10% year over year to $360 million. Higher transaction-based income was offset by increase in credit loss expenses and lower interest income. Notably, annualized net new business volume growth for personal banking was strong at 3.1%.

The company’s Investment Bank unit’s adjusted operating profit before tax came in at $203 million, down 59% from the prior-year quarter. Challenging market conditions affected both Equities and FX, Rates & Credit revenues. Rise in expenses was another headwind.

Corporate Center incurred adjusted operating loss before tax of $160 million in the quarter.

Strong Capital Position

As of Sep 30, 2019, UBS Group's invested assets were $3.42 trillion, up 1.2% sequentially. Total assets increased marginally to $973.1 billion.

UBS Group’s phase-in common equity tier (CET) 1 ratio was 13.1% as of Sep 30, 2019, compared with 13.5% on Sep 30, 2018. Phase-in CET 1 capital decreased marginally year over year to $34.7 billion. Fully applied risk-weighted assets climbed 3% to $264.6 billion.

Outlook

The company expects easing of monetary policy by the central banks to help offset the slowing global economic growth over the medium term. Also, positive momentum toward resolving these issues might improve confidence and the economic outlook. However, geopolitical tensions and trade disputes are likely to affect investor confidence.

Also, low and persistent negative interest rates and expectations of further monetary easing will adversely impact net interest income on a year-over-year basis.

UBS Group’s regional and business diversification, along with actions it is undertaking, will help to mitigate above headwinds. Recurring revenues are also likely to benefit from higher invested assets. The company expects to remain committed to delivering on its capital return objectives and creating sustainable long-term value for shareholders.

Our Take

UBS Group’s third-quarter results do not seem impressive. Though the Asset Management unit performed well, Personal & Corporate banking and Investment Bank units disappointed. 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 Price, Consensus and EPS Surprise

UBS Group AG price-consensus-eps-surprise-chart | UBS Group AG Quote

Currently, UBS Group carries a Zacks Rank #5 (Strong 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 results on Nov 4 and Deutsche Bank Aktiengesellschaft DB on Oct 30. Mitsubishi UFJ Financial Group MUFG will report on Nov 12.

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