While UBS (UBSG.S) posted its highest quarterly profit since 2015 on Tuesday, robust trading activity by the world’s ultra-wealthy led to a 23% surge in fee income.
The surprisingly strong results are preceded by double-digit percent gains for net profit in each of the past four quarters and coincide with Switzerland’s largest bank announcement on new plans for its digital push including a new advisory service for affluent U.S. clients.
The net profit came in at $2.279 billion in the third quarter, which effortlessly surpassed the median estimate of a 24% fall to $1.596 billion from a poll of 23 analysts compiled by the bank. Chief Executive Ralph Hamers said during a call with analysts:
“We continue to perform well above the financial targets that we have given you. And while we do that, we continue to be focused on driving growth on the top and the bottom line.”
The bank’s flagship wealth management business posted its best pre-tax profit ever, soaring 43% on a 4% climb in income from transactions amongst its wealthy and ultra-wealthy clients as well as a 15% rise in net interest income due to higher lending levels and margins.
In fresh client fee-generating inflows, the division saw $18.8 billion, while invested assets fell slightly from June to $3.198 trillion.
With revenue edging 1% higher, UBS’s investment bank posted a steadier performance. Revenue in its equities trading unit was up 3% to $1.36 billion. But, its foreign exchange, rates, and credit arm posted a 32% drop in turnover to $363 million.
Helped by bumper M&A volumes, revenue from advising on deals and listings jumped 22% to $792 million.
The surprise profit comes shortly after a stellar quarter for U.S. and British banks which, encouraged by economic rebounds, released cash set aside for pandemic losses. A record wave of deal-making activity also boosted results for the likes of Goldman Sachs (GS.N) and JPMorgan (JPM.N).
UBS shares were 1.4% higher in morning trade on October 26, 2021.
In a note to the clients, Citi analysts said:
“The result marks another impressive quarter. UBS remained one of their top picks in the banking sector and reiterating a buy rating on the stock.”
However, it issued a slightly cautious note for the coming quarter saying that continued uncertainty surrounding economic recovery and recent policy changes in China could hurt business. It also noted that in the past quarter client activities had been usually high.
CEO Hamers, who took over as chair in November 2021 following a successful tenure at ING (INGA.AS) that made the Dutch lender more digitally savvy, said he planned to present an updated strategy on Feb. 1.
That strategy will include new pushes into digital and hybrid banking.
To reach more customers outside its super-rich core client base, UBS is trying to improve its digital services, while also saving on costs. In June, Reuters reported that the lender sees potential for a new online platform to pull in $30 billion in the next year after being launched in May 2021.
It now wants to build a digitally scalable advice model for affluent clients in the Americas, which includes the core wealth market of the United States, as part of its 2025 vision.
To bring its cost/income ratio down to 55% in its Swiss business from 59% in the first nine months, it also wants to expand its digital offerings in its home market.
By UBS advising and managing money for the world’s rich, it derives the biggest chunk of its profits, while also maintaining smaller global investment banking and asset management operations. The bank only conducts retail and corporate banking in its home market.
Since the outbreak of the coronavirus pandemic, that model has helped Switzerland’s largest lender exceed expectations, as buoyant markets helped it generate higher earnings off of managing money for the rich.