UBS Clients Return From Sidelines as Wealth Business Surges

(Bloomberg) -- UBS Group AG saw clients return from the sidelines in the first quarter, adding the most new money to the bank's global wealth management business in about a decade.

Net income at the Zurich-based bank surged 80 percent after better-than-expected results in wealth management and investment banking. Earnings at the unit catering to rich clients contributed 639 million francs in pretax profit, compared with estimates of 548 million francs. The investment bank delivered 480 million francs of earnings, about 130 million francs higher than expected.  

Chief Executive Officer Sergio Ermotti has achieved about 80 percent of the bank's target to cut 2.1 billion francs of costs this year and said the bank is seeing an improvement in investor sentiment and confidence. Wealth management has become the Zurich-based firm's main business since paring back investment banking in late 2012, with new inflows at its global wealth business this quarter of almost 19 billion francs the best result since 2007, according to Citigroup Inc.

The shares surged as much as 4.3 percent in Zurich and gained 3.5 percent to 17.24 francs as of 1:20p.m.

‘Momentum Coming'

“We do see a little bit of momentum coming from 4Q into Q1 in terms of clients being willing to consider opportunities to be more constructive and optimistic,” Ermotti said in a Bloomberg TV interview. “Translating that into sustainable client activity across the board is another matter.”

Transaction-based income jumped to 479 million francs from 402 million francs, a sign that UBS's wealthy clients are becoming more active putting their money to work. Income from transactions also rose in the Wealth-Management Americas unit. While net new money was positive in all regions with Europe “particularly strong," UBS suffered further cross-border outflows of 1.4 billion francs.

Wealth management Americas, the firm's U.S. brokerage, reported a pretax profit of $302 million as rising interest rates in the U.S. helping to offset loose monetary policy in Switzerland and the euro region, where net interest income is under pressure. Net new money -- an indicator of future revenue -- fell to $1.9 billion from 13.6 billion in the previous year as the bank hired new advisors.

Beats Estimates

Quarterly net income rose to 1.27 billion Swiss francs ($1.28 billion), from 707 million a year earlier, the Zurich-based lender said in a statement on Friday. Analysts were expecting 953 million francs, the average of eight estimates compiled by Bloomberg. Today's results put Ermotti on course to meet a target of attracting about 50 billion francs of new money this year, with the bank saying its “well-placed” to benefit from market improvements.

“Overall we view these as solid figures,” Citigroup analysts led by Andrew Coombs said in a note to clients, reiterating his buy-rating on the stock. “Wealth Management trends are also reassuring, with net new money and gross margins ahead of consensus.”

UBS's pared-down investment bank -- led by Andrea Orcel -- almost doubled profit from a year earlier. Revenues from Equity capital markets rose 64 percent, while the bank saw a decline from rates, currency and credit trading. UBS cited “lower market volatility and weaker client activity” across foreign exchange products and interest rate options.

To contact the reporter on this story: Jan-Henrik Förster in Zurich at jforster20@bloomberg.net.

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Andrew Blackman