UBS (UBS) first quarter results impress with rising operating profit

UBS Group AG UBS reported net profit attributable to shareholders of $2.1 billion in the first quarter of 2022, up 17.1% from the year-ago quarter level.

UBS’s performance was boosted by a 10% increase in net interest income (“NII”) compared to the prior year quarter. Capital’s strong position was a tailwind.

However, higher expenses and a 5% decrease in net fee and commission income year over year impacted results.

The performance of the Investment Banking and Personal & Corporate Banking divisions was impressive during the quarter. On the other hand, weaker profitability was recorded in the Global Wealth Management and Asset Management divisions.

Operating Income Climbs, Expenses Rise

UBS Group AG’s operating profit rose 7.7% to $9.4 billion from the year-ago quarter level.

However, operating expenses rose 3.5% to $6.6 billion in the first quarter. This increase is largely the result of an increase in staff costs, but also in general and administrative expenses.

Additionally, UBS Group AG reported total net expense for credit losses of $18 million in the quarter, compared to releases of $28 million seen in the prior year quarter.

Performance of the Business Divisions

Global Wealth Management‘s first-quarter pretax operating profit was $1.3 billion, down 7% year-over-year. The decrease is explained by the increase in operating expenses, partly offset by the increase in operating income

Asset Management’s operating profit of $174 million fell 23% year-on-year, mainly due to lower performance fees. Additionally, invested assets decreased 4.7% sequentially to $1.15 trillion.

Personal & Corporate Banking reported pretax operating profit of $428 million, up 10% year-over-year. This increase was driven by strong business momentum, with higher transaction-based commissions, net recurring commissions and NII.

The Investment Bank unit’s pretax operating profit was $929 million, up sharply from $412 million in the year-ago quarter, mainly due to higher profit from operations, but partly offset by the increase in operating expenses.

Group Functions suffered a pretax operating loss of $112 million in the current quarter, compared with a loss of $139 million in the prior year quarter.

Solid financial position

As of March 31, 2022, UBS Group AG’s invested assets decreased by 4.7% to $4.4 trillion from the prior quarter level. Risk-weighted assets increased 3.3% to $312 billion from the prior quarter level.

Nonetheless, total assets rose 2% to $1.14 trillion from the previous quarter’s level. Common Equity Tier 1 (CET1) capital increased 10.3% to $44.6 billion. UBS Group AG’s CET1 return on capital was 19% as of March 31, 2022, compared to 18.2% as of March 31, 2021.

Encouraging Capital Deployment Activities

During the quarter under review, UBS returned $3.4 billion to its shareholders through share buybacks and dividends. The company repurchased $1.7 billion in common stock and paid the 2021 dividend of 5 cents per share, totaling $1.7 billion. Additionally, the company intends to repurchase a total of approximately $5 billion in common stock in 2022.

Our opinion

The performance of UBS Group AG in the first quarter looks impressive. It continues to take initiatives to digitize its operations and better serve its long-term customers. UBS’s $1.4 billion deal to acquire Wealthfront will accelerate its growth in the United States by strengthening its reach to high net worth investors and bolstering its distribution capabilities. However, the negative interest rates prevailing in Switzerland are acting as a headwind.

UBS Group AG price, consensus and EPS surprise

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

Currently, UBS Group AG carries a Zacks rank #3 (Hold). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of other banks

First Horizon National SocietyFHN’s first-quarter 2022 adjusted earnings per share of 38 cents beat Zacks’ consensus estimate of 34 cents. However, the figure was down 25% year-on-year. Results exclude after-tax impacts of 4 cents per share from notable items related to the IBERIABANK Corporation and TD-Bank merger transactions.

First Horizon’s results reflect a higher loan balance, provisioning benefits and lower expenses. However, lower NII and commission income impacted revenue. In addition, pressure on margins due to low interest rates has been a spoilsport for FHN.

M&T Banking Corporation MTB reported net operating income per share of $2.73 in the first quarter of 2022, beating Zacks’ consensus estimate of $2.26. However, MTB’s net income compares unfavorably to the $3.41 per share reported a year ago.

Rising non-interest income and a strong capital position were tailwinds for M&T Bank. However, a decline in the NII, net interest margin and an increase in expenses were the main factors for the slowdown.

Fifth Third Bancorp FITB reported first-quarter 2022 earnings (excluding after-tax impacts of certain items) of 69 cents per share, excluding Zacks’ consensus estimate of 70 cents. Including the impact of these items, earnings per share were 68 cents, indicating a 27% year-over-year decline.

Fifth Third’s performance shows lower revenues mainly due to lower commission income. Shrinking margins and deteriorating capital position were spoilsports for FITB.

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