A file photo shows the logo of Swiss bank UBS at the company's headquarters in Zurich, Switzerland on February 10, 2015.ARND WIEGMANN/Reuters
UBS Group AG rose to the highest price in Zurich trading since the day the Swiss government came to its rescue in October 2008 after profit almost doubled in the first quarter.
UBS net income was 1.98 billion Swiss francs ($2.1-billion), above the 1.22 billion-franc average estimate of seven analysts in a survey compiled by Bloomberg as all of the bank's key divisions beat forecasts.
"UBS blew away expectations," Dirk Becker, a Frankfurt– based bank analyst at Kepler Cheuvreux said in a note Tuesday. "This was a comprehensive earnings beat by anyone's standards."
Chief Executive Officer Sergio Ermotti, who reorganized the bank to shrink the securities unit and focus on wealth management, is improving returns by cutting costs while litigation expenses persist. The bank attracted 14.4 billion francs in new funds at the main money management unit, topping estimates after a weak fourth quarter.
UBS's return on tangible equity – a measure of profitability – amounted to about 14 per cent in the quarter, above its target of 10 per cent for the year.
"The bank had a good quarter all around," said Alevizos Alevizakos, an analyst at Keefe Bruyette & Woods Inc. in London. "Revenues were strong and UBS exercised good cost control."
UBS rose as much as 7.2 per cent, the biggest gain in two years, and traded 6.5 per cent higher at 20.28 francs as of 1:28 p.m. in Zurich, valuing the bank at about 78 billion francs.
Currency Probes
UBS said in its quarterly report Tuesday that discussions with the U.S. Justice Department about a settlement for attempting to rig currency markets are at an "advanced stage." No agreement on the form of the resolution has been reached, the bank said.
UBS is among a group of banks that may have to pay about $1-billion to settle with the Justice Department for attempting to rig currency markets, people familiar with the talks said in March. The bank in November was ordered to pay about $800-million by regulators in the U.S., Britain and Switzerland in related separate probes.
Other investigating authorities may seek to conclude similar resolutions in the near future, UBS said. It said its provisions are "adequate" to meet the anticipated cost of resolutions.
Legal Costs
The bank took a provision of 1.84 billion francs in the third quarter last year. It added 176 million francs in litigation provisions in the fourth quarter and a further 134 million francs when the bank published its annual report in March, after settling a U.S. lawsuit related to currency rigging.
The bank booked provisions of 58 million francs in the quarter reported Tuesday.
The Justice Department is also weighing whether evidence of wrongdoing in currency trading means banks violated earlier deals resolving probes into the rigging of benchmark interest rates, two people familiar with the matter said in March.
Wealth management pretax profit rose 54 per cent to 951 million francs, beating the 699 million francs estimated by analysts.
Wealth management Americas saw earnings rise 4.5 per cent to 253 million francs. The unit added $4.8-billion in net new money. Global asset management posted pretax profit of 168 million, above analysts' estimate of 139 million.
Trading Boost
UBS is changing the pricing on some wealth management accounts in light of the interest rate environment in Switzerland and parts of Europe, the bank said. While this may cause outflows at the division, UBS expects net new money to remain positive in the second quarter, the bank said.
The initiative will affect about 1,000 client relationships UBS is reviewing with a total of 30 billion francs in assets at the bank, Ermotti said on a conference call with analysts and journalists.
Pretax profit at the investment bank rose 82 per cent to 774 million francs, helped by an increase in trading amid higher market volatility and strong client activity.
Revenue in equities rose 15 per cent to 1.2 billion francs, while fixed-income trading was up 71 per cent to 701 million francs. The unit that advises companies on deals and underwrites securities offerings saw a 4 per cent increase in sales.
"We stayed disciplined on risk and we delivered across all businesses and regions," Ermotti said in the statement. "The results again demonstrate the benefits of a strategy defined early."
Banks including UBS's local competitor Credit Suisse profited from a surge in trading in the first quarter. Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. posted revenue gains of more than 20 per cent in the first quarter from a year earlier, the biggest increase since at least the final quarter of 2009. Deutsche Bank AG's investment bank boosted revenue 15 per cent in the quarter.
"The already good capital position improved further, increasing the gap to its main competitor, Credit Suisse," Andreas Venditti, an analyst at Vontobel Holding AG in Zurich said in a note. UBS increased its capital ratio under fully applied Basel rules to 13.7 per cent. That compares with 10 per cent at Credit Suisse.