UBS Group AG got a boost from rich Asian clients in a quarter hit by a poor result at the investment bank and lower income from lending as interest rates have languished.
The key wealth management unit added $15.7 billion new money in the three months through September, helping lift assets overseen for the affluent to a record $2.5 trillion, UBS said Tuesday. While profit beat analysts’ estimates, UBS said it will book a roughly $100 million charge in the fourth quarter to restructure the securities unit, and warned that lower interest rates will continue to squeeze income.
“Market conditions in the last few quarters have been very challenging,” Chief Executive Officer Sergio Ermotti said in an interview with Bloomberg TV. That’s particularly true for the investment bank, which is “much more skewed towards Europe and Asia” than the U.S.
Ermotti is seeking to turn the corner after a year marred by huge legal fines, questions about succession planning and a slump in the share price. In August, he shook up the management board, hiring former Credit Suisse Group AG banker Iqbal Khan to co-run global wealth management and positioning him as a potential successor. But Khan’s start at UBS was overshadowed by a spying scandal that exposed a deep rift with his former boss.
UBS was one the first banks to pivot away from investment banking and toward wealth management after the financial crisis, becoming a model for rivals including Credit Suisse. Still, increasing competition for rich clients, negative interest rates and a slowing economy are putting pressure on that business. That’s showing on the bottom line, as lower adjusted pretax profit at the wealth business contributed to a 16% decline in third quarter group net income. Ermotti said Tuesday that he plans to update investors on its targets in January.
UBS was up 1.2% at 1:34 p.m. in Zurich trading. Before today, shares of the lender had lost 6.5% this year, compared with a gain of 15% at Credit Suisse, where a three-year restructuring modeled on UBS’s pivot to private banking started to bear fruit. To lift the stock, UBS has earmarked $2 billion for share buybacks through 2020. It is nearing its $1 billion target in buybacks this year.
“UBS continues to have the best wealth-management franchise, best business mix in a new regulatory regime,” analysts Kian Abouhossein and Amit Ranjan at JPMorgan Chase & Co. wrote in a note. “Although the investment bank performance is relatively weak compared to U.S. peers, we have to take into account” the geographic and business focus of the bank.
Global wealth management is by far the biggest of UBS’s units, contributing more than twice as much revenue and pretax profit last year as the investment bank. A prolonged period of low rates is eating into earnings from lending, with net interest income at the business declining about 3% from a year earlier, and recurring fee income falling as well.
UBS said in August that it would expand a policy of charging affluent clients for excess cash holdings. Clients will start feeling the impact on Nov. 1 when the policy comes into effect. The bank doesn’t plan to pass on negative rates to retail clients, Ermotti said.
Key results from UBS’s third quarter: