By
Bhushan Akolkar
April 12th, 2024
In its outlook, UBS warned that continued group credit losses could be expected in the second half of the year due to the coronavirus pandemic, but said these would be below those seen in the first half, especially in Q2.
Swiss multinational investment bank UBS Group AG (NYSE: UBS) reported its net profit was down 11% in Q2 of 2020 amounting to $1.23 billion. Last year it stood at $1.4 billion. This fall is explained by the impact the COVID-19 outbreak had on the overall earnings.
Meanwhile, today in the pre-market UBS stock is up 3.66%, reaching $12.46. Yesterday, on the day of announcing Q2 earnings results, UBS stock was 0.41%, at $12.02 when the market closed.
However, it is still higher than the analysts estimated – they said it will hover around $973 million for the quarter. The Swiss lender also said a net profit attributable to shareholders was $1.6 billion for the previous quarter, as financial market insecurity made it possible for the operating profits of this investment bank to grow. Still, the company cautioned of a volatile future in the next quarters to come as the virus began to spread throughout the globe in its second wave, eventually bringing the global economy to a dead end.
The higher trading activity went on boosting the bank’s earnings in the mentioned period, but couldn’t manage to compensate the virus-related decline in its retail and corporate banking sectors. UBS operating income in Q2 stood at $7.4 billion, compared to the $7.5 billion a year ago. Return on tangible equity was 9.6%, versus 11.9% a year ago.
Common equity tier 1 capital ratio was 13.3%, compared to 13.3% a year ago. The results also included credit loss expenses of $272 million, of which $110 million came in personal and corporate banking and $78 million in the investment bank.
After Challenging Q2 UBS Anticipates More Credit Losses
In its report, the bank advised that more group credit losses could be anticipated in the second half of the year due to the COVID-19 second-wave outbreak, but added there would be below those seen in the first half.
The company also noted it was analyzing the mix between cash dividends and share buybacks in light of the inflated volatility regarding the coronavirus pandemic.
The bank stated:
“While it is premature to provide guidance for 2020, going forward the intention is to continue to pay out excess capital and maintain the overall capital returns to shareholders consistent with previous levels.”
From the company, they added that share repurchases may go on even during the fourth quarter but that all will rely upon business development and the second-half outlook.
In a statement Tuesday, UBS CEO Sergio Ermotti stated:
“As we continue to face a challenging environment, we are adapting and accelerating the pace of change, supporting our clients, employees, and the economies in which we operate, while remaining focused on our strategic priorities.”
Most Clients Thinking of Altering Their Portfolio
Ermotti also stressed that the level and frequency of potential geopolitical, political and economic events in the second half of the year means more clients will want to adjust their asset allocation before the year comes to its end. He added that the UBS client survey showed that 61% of clients are thinking of altering their portfolios after the U.S. election on November 3, nevertheless the outcome.
He said:
“If I put everything together, I do expect the second half of the year maybe not to be as benign as the first half, but still quite robust.”
He went on suggesting that there is a level of either “complacency” or “over-optimism” in financial markets, with most of the asset classes now at or around their pre-COVID levels in spite of a many of them threatened by probable tail risks.
Ermotti will be replaced by ING CEO Ralph Hamers on November 1 this year.