ZURICH–UBS posted a smaller-than-expected quarterly profit as turmoil in financial markets hurt its investment banking and wealth management businesses, with analysts predicting the Swiss bank will see harsh conditions in the second half as well.
The Zurich-based bank launches a round in earnings for major European lenders. Analysts are looking out for indicators that a weaker economic environment, higher interest rates and war in Ukraine may be affecting their outlooks and operations.
UBS saw its net profit rise 5 percent to $2.1billion in the three-months ended June. That compared with $2.0 billion a year earlier and lagged expectations for a 19.8 percent rise to $2.4 billion, in a poll of 19 analysts compiled by the bank. The shares fell by as high as 6 percent.
“The second quarter was one of the most challenging periods for investors in the last 10 years,” Chief Executive Ralph Hamers said in a statement. According to Hamers, the operating environment for the second half is “uncertain”.
UBS is performing well after U.S. competitors earned less overall during the quarter because of drops in dealmaking, and sales of investment products. Both Morgan Stanley and JPMorgan Chase & Co. reported more than halving of their investment banking revenue.
UBS earned more from Japan’s real estate joint venture than it lost. This one-off gain was worth over $800 millions.
UBS shares were 5 percent less in the early hours of Tuesday. They are down 6.6 percent so far this year, outperforming a 23 percent fall in a broad index of European banks.
ZKB analyst Michael Klien said in a note uncertainties in financial markets related to the war, high energy prices, and the COVID-19 pandemic “could also affect the level of customer activity” in the third quarter.
Clients Remain in the Sidelines
Its investment banking business saw revenue fall 14 percent to $2.1 billion from $2.5 billion a year ago. Analysts expected $2.3 billion.
Advisory revenue fell 30% and capital markets revenue fell 71%, both of which were partially due to lower initial public offerings.
The company’s wealth management division saw revenue of $4.7 billion. This is down from $4.8 million a year earlier and against expectations for $4.8.
UBS stated that the decline was due to lower transaction fees income and that Asian clients were particularly affected. Outflows in asset management totaled $12 billion, primarily in equities.
It stated that it will make the share buybacks previously mentioned in the coming months.
Analysts working with Jefferies stated in a note that they were shocked by the results. “Pretty much every division was missed.”
The bank indicated that wealth managers will remain cautious in light of geopolitical uncertainty and macroeconomic risks.
In an executive board reshuffle, UBS made Iqbal Khan the head of its global wealth management division.
In a hint of the challenges faced by financial firms, Julius Baer, a Swiss wealth manager said Monday that it will freeze hiring for positions other than relationship managers after lower costs and client activity caused a 26% drop in earnings.
UBS, a smaller rival cross-town bank, warned Wednesday of a possible second-quarter loss. On average, analysts expect that the bank will report a loss in the range of 60 U.S.cents per share.