UBS Group AG leaned on traders at its investment bank to boost profit in the first quarter after its key wealth management business was hit by slowing client activity and rising costs.
The Zurich-based bank reported net income of $2.1 billion, compared with analyst estimates of $1.9 billion, after the volatility caused by Russia’s invasion of Ukraine helped drive trading revenue to a record. Earnings at the private banking unit were less positive as a pullback by Asia Pacific clients contributed to a 19% drop in transaction-based income.
UBS is giving the first insight into how European banks are navigating the turmoil caused by the geopolitical crisis and client reaction to headwinds includes soaring inflation and rate rises. While many rich clients are staying on the sidelines because of the muted economic and market outlook, investment banks are seeing results buoyed by resurgent trading conditions across both fixed income and equities.
“The first quarter was dominated by extraordinary geopolitical and macro events,” UBS Chief Executive Officer Ralph Hamers said in a statement on Tuesday. “With volatile markets driving trading volumes, we facilitated high volumes of trades, managed risks and provided access to liquidity.”
The stock gained as much as 2.5% in Zurich trading and was up 2.1% to 16.6 francs as of 11 a.m. local time.
UBS’s investment bank -- weighted most heavily to equities -- posted before-tax profit of about $929 million, compared with analyst estimates for income on that basis of about $612 million. Global markets revenue increased about 4% after excluding a year-earlier loss related to the collapse of Archegos Capital Management. Equity derivatives, rates and foreign exchange helped drive the gains.
“UBS posted a good set of results led by strong investment banking revenues in particular,” analysts including Flora Bocahut at Jefferies, wrote in a note to investors.
The global wealth management business saw results clouded by a slowdown in client activity and rising costs to pay its financial advisors. Loans also decreased compared with the previous quarter, as did invested assets. One bright spot in the unit’s results was net new fee generating assets of $19.4 billion.
The bank -- along with peers -- is also contending with surging compensation costs, particularly in U.S. and Asia. Overall expenses rose about 4% in the quarter, and the cost-to-income ratio in wealth management fell outside group-wide targets amid rising financial advisor pay.
Amid the uncertainty, Hamers is boosting shareholder returns and pursuing growth through digitalization and seeking to reach a broader category of wealthy clients. In line with many peers following the invasion of Ukraine, the bank has been winding down business in Russia and says it isn’t pursuing new customers there.
The bank holds approximately $22 billion in invested assets for Russian clients not domiciled in the European Economic Area or Switzerland, according to Bloomberg calculations based on the bank’s quarterly report.