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2020-04-28

UBS posts an increase in net profit of 40 per cent in the first quarter as wealth shows resilience

Image:-net profit of 40 per cent in the first quarter

The world's largest wealth manager, UBS (UBSG.S), reported on Tuesday a 40 percent increase in profit in January-March, bolstered by ultra-rich clients reshuffling portfolios to cope with the coronavirus outbreak, and as a revamp helped its core business to reach its best quarter from 2008.

The bank had booked a net profit of $1.595 billion, slightly ahead of its previous $1.5 billion guidance. It reported strong operating performance across all business divisions, even after accounting for the risk of the virus causing increased defaults.

"Looking ahead, the range of possible outcomes remains very wide and predicting the timing and shape of any potential economic recovery is too early," the largest lender in Switzerland said in a statement.

"Continued disciplined execution of our strategic plans will help mitigate this." The bank recorded $268 million in credit loss expenses for the quarter, saying it was exposed primarily to credit related to wealth management clients and in Switzerland, noting that its credit book was "of high quality."

Cross-town rival Credit Suisse (CSGN.S) posted a seven-fold increase in credit loss provisions on Thursday, as lenders are bracing the virus globally for rising defaults.

The core business of UBS managing money for the world's wealthy saw investing assets decline sequentially to $2,339 trillion on the back of falling asset valuations, while revenue grew across all major lines, helping to increase operating income by 14%.

Compared to rivals more focused on corporate and retail banking, UBS's resilient performance in wealth management business puts it on a firmer footing going into the crisis. HSBC (HSBA.L) and Santander (SAN.MC) both reported sharp declines in first-quarter profit on Tuesday, and set aside billions in provision for expected loan loss.

UBS 'investment bank more than tripled earnings before tax compared to a tough start in 2019, while asset management increased earnings by 52 per cent. Its Swiss retail and corporate business hit 16 per cent behind the lower expected recovery from loans to loan-impaired corporate counterparties.

In investment banking, its global market revenue increased by 44%, with foreign exchange earnings, rates and credit trading doubling, while equity increased by 18%.

UBS presented a revised vision for its flagship wealth business in January, aimed at boosting lending and extending more complex financing to wealthy customers, as well as increasing access to private and capital markets through enhanced collaboration between private banking, asset management and its investment bank.

The coronavirus outbreak has stymied some of the businesses where UBS hopes to increase its wealth foothold, as deal-making and IPOs ground to a halt during the quarter, and as a global market rout triggered margin calls that prompted some wealth managers to rein in leverage extended to rich customers.

However, the results of UBS pointed to resilience in wealth management, as pre-tax profit grew by 41 per cent, bringing in net $12 billion in fresh customer inflows and $3.9 billion in net new loans.

The bank recorded a credit loss expense of $53 million across the loans it extends to wealthy individuals-where the bank has previously pointed to conservative risk management-or 0.03 percent of its wealth management lending book, and a low level of marginal calls.

UBS 'wealth business recorded its highest pre-tax profit in the Asia-Pacific region as transaction revenue jumped 93 percent.