UBS on Tuesday missed expectations for the second quarter of 2022 as its wealth management and investment banking divisions saw a drop in client activity due to the global market slump.
The Swiss bank reported net profit attributable to shareholders of $2.108 billion, below the company’s aggregate analyst expectations of $2.403 billion.
It marks a 5% increase from the $2 billion reported in the same period last year, when the flagship wealth management business saw a significant windfall from wealthy investors, and follows a strong first quarter that see the group earn a net profit of $2.136 billion. .
“The second quarter was one of the most challenging periods for investors in the last 10 years. Inflation remains high, the war in Ukraine continues, as well as strict Covid policies in parts of Asia,” said the UBS CEO Ralph Hamers said in a statement. “In these uncertain times, our clients rely on our powerful ecosystem to navigate the markets and invest for the long term.”
Other highlights of the quarter:
- Total revenue reached $8.917 billion, compared to $8.897 billion in the same period last year.
- The return on tangible assets stood at 16.4%, compared to 15.4% a year ago.
- The CET 1 capital ratio, a measure of bank solvency, reached 14.2% compared to 14.5% in the second quarter of 2021.
Investment banking revenues fall
Investment banking revenue totaled $2.094 billion, down 14% from the same period last year.
In its report, the bank highlighted a $1.121 billion drop in net fee and commission income, primarily reflecting a “decrease in underwriting fees, particularly in equity capital markets, and a decrease in net brokerage fees due to lower levels of client activity in Global Wealth Management and the Investment Bank.”
“Mutual fund fees declined, reflecting negative market performance and lower performance fees, and revenue from M&A transactions also declined,” the report added.
While the wealth management business took a hit from a broad drop in markets, Hamers said this had been largely offset by rising interest rates, with the Federal Reserve’s United States that started an aggressive hike cycle to try to curb inflation.
“In our recurring revenue, you’re seeing a decline because of the level of the markets that have gone down. You’re also seeing a decline in transaction revenue because clients have been moving away from their investments,” he told CNBC’s Geoff Cutmore on Tuesday.
“However, you see a 24% increase in net interest income due to the increase in rates, and as a result, overall income from the wealth management business in the quarter was only – 2% in very difficult circumstances.”
The logo of Swiss banking giant UBS.
Fabrice Coffrini AFP | Getty Images
As the market decline accelerated across equities and fixed income in the second quarter, the bank’s wealth management division saw net new fee-generating assets of about $400 million across the world, although inflows were more than $3 billion net positive in Asia Pacific.
“On the one hand, we’ve already seen for a couple of quarters the trend of customers going down in transactions, slowing down transactions,” Hamers told CNBC on Tuesday.
“On the other hand, we saw very large net new fee-generating assets specifically this quarter ($3.3 billion in Asia-Pacific), which basically shows you that clients are moving away from transactions to the mandate business, and this has always been part of our strategy.”
The asset management business also posted $12 billion in outflows, mostly from stocks.
Hamers said he was slightly more positive about the macroeconomic and market outlook in Asia at the end of the third quarter, when more clarity has been established about the political situation in China, meaning a tightening of economic policies and the possibility to raise more. of the Covid-19 restrictions.