UBS Profit Beats Estimates as Rate Tailwind Offsets Market Slump

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(Bloomberg) — UBS Group AG reported better-than-expected profit in the third quarter, as higher interest rates helped offset the global economic downturn and market volatility. 

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The first of the top-ranking European banks to report earnings, UBS said net income in the three months to September was $1.73 billion, compared with an estimate of $1.57 billion. The key wealth management unit saw client inflows of $17.1 billion while investment banking revenue slumped. 

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Sharply higher interest rates in the US and Europe are giving lenders a tailwind in lending revenue, helping to keep plans to return capital to investors intact. Yet global banks have seen equities and deal-making revenue hurt by the slump in confidence accompanying the energy crisis, Russia’s war in Ukraine and the slowdown in China’s economy. 

UBS Chief Executive Officer Ralph Hamers’ strategy has focused on boosting automation, streamlining the lender’s executive ranks and improving the company’s standing in the US, where it is eclipsed by local rivals. He faced a major setback in September when the bank announced it was pulling out of a deal to buy US robo-advisor Wealthfront.

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At US peers, revenue and earnings were up in most cases, beating analysts expectations. But with the looming recession edging closer, US banks are starting to prepare with higher loan provisions. JPMorgan Chase & Co added $808 million to its loan provisions, whilst Wells Fargo set aside $784 million. 

The bank said share buybacks should reach about $5.5 billion this year. 

“The macroeconomic and geopolitical environment has become increasingly complex,” Hamers said in the earnings release on Tuesday. “With this uncertainty, clients turned to us for advice and solutions.”

In wealth management, UBS is also benefiting from higher interest rates on the funds it lends for clients’ market activities. Profit before tax was up 4% from a year ago at $1.5 billion, higher than estimates. Still, recurring fee income fell 14% on the back of market declines. 

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Global lenders are confronting the reality of rising inflation and slowing growth due to tighter monetary policy, while strict Covid policies in China have hurt demand for the wealth management products that UBS offers. 

UBS has been among the lenders hit by a slowdown in trading activity in Asia, driven by pandemic controls as well as a decreasing demand for exports. The tightening Covid controls in China have worried global investors since the start of the year.

Revenues at the investment-banking unit followed US peers, declining 19% amid a broader slump in deal-making and equities. Advisory revenue fell 58%. In asset management, total revenues were down 13% from a year ago, with management fees down 10%.