UBS reports 63% jump in net profit as wealth management division soars

UBS has beaten second-quarter earnings expectations as the wealthy poured money into its flagship wealth management business.

The Swiss banking giant on Tuesday reporting net profit attributable to shareholders of $2 billion for the second three months of the year. This marks a rise of 63% from the same period last year, and significantly above analysts expectations of $1.34 billion, according to Refinitiv data.

In its earnings report, UBS attributed the success to “favorable market conditions and investor sentiment,” along with “continued momentum in flows and volume growth.”

Other highlights for the quarter:

• Operating income hit $8.98 billion from $7.4 billion a year ago.
• Return on tangible equity stood at 15.4%, versus 9.7% a year ago.
• CET 1 ratio, a measure of bank solvency, reached 14.5% versus 13.3% a year ago.

“Our growth in the second quarter was underpinned by the relationships we have built and strengthened throughout the pandemic and by the trust our clients placed in our people and in our firm. All business divisions and all regions contributed to our results,” UBS CEO Ralph Hamers said in a statement.

“Momentum is on our side and our strategic choices and initiatives are paying off. And we are eager to make the most of the future.”

Hamers told CNBC on Tuesday that the bank’s strategic focus on particular sectors and clients was now starting to manifest itself as increased demand.

“All the changes that we made over the last one to two years around the banking side [are] actually paying off, and with that you see actually that we are gaining market share. It is because of the focus on our client franchise,” he said.

The bank’s flagship Global Wealth Management division was the biggest contributor to the results, generating a 47% increase in quarterly profit before tax to $1.3 billion. Recurring net fee income also increased by 30%.

This, alongside buoyant market conditions, helped lift invested assets in the global wealth management business by 4% to $3.2 trillion.

Hamers said that while strong market momentum had boosted the wealth management division and stimulated further investment demand from clients, the underlying trends were also promising.

“We profit from market developments, absolutely, but if you look at the inflows in net fee-generating assets of $25 billion just in a quarter in the wealth business, if you look at the underlying transaction income increasing by 16%, then you see that there is real increase in activity, also from the clients and not just the market,” he told CNBC’s Joumanna Bercetche.

In a recorded message released alongside the earnings report, Hamers highlighted that credit card transactions in Switzerland had almost returned to pre-Covid levels, while investors around the world were growing more optimistic about the short-term economy.

“If I were to characterize last quarter with just one word, it would be this: momentum,” Hamers said.

Switzerland’s largest lender has also emerged from the shadow of the collapse of U.S. hedge fund Archegos Capital. The scandal caused a $774 million hit to profits in the first quarter and stunned investors.

Though not mentioned in the second-quarter report, the bank has previously said that it had exited all exposure to Archegos and that any second-quarter losses would be “immaterial.”