by Brenna Hughes Neghaiwi
ZURICH (Reuters) – UBS on Tuesday reported its best annual profit since 2006, encouraging the Swiss bank to increase share buybacks and set more ambitious profitability targets.
The stock was up 6.5% in the morning on the Zurich Stock Exchange, marking the biggest rise in the Stoxx 600.
As part of the first major strategic review since Chief Executive Ralph Hamers took over in November 2020, Switzerland’s largest bank said it wants to use technology tools to help it improve its revenue and attract more customers in the years to come. UBS also wants to continue to restructure its organization to reduce costs.
“UBS is in better shape than ever,” Ralph Hamers said in a statement. “We are adapting our coverage models to offer more digital and scalable advice as well as tailored solutions.”
The Zurich-based group has announced a share buyback plan for up to $5 billion this year, following buybacks of $2.6 billion in 2021. It also plans to increase the dividend to 0.50 dollar per share for 2021, compared to $0.37 for 2020.
For the full year, UBS’s net profit climbed 14% to $7.5 billion (6.62 billion euros), beating expectations of $6.976 billion (6.20 billion euros) of analysts, according to a consensus provided by the company.
During the fourth quarter, net profit fell by 18% to 1.348 billion dollars (1.2 billion euros) due to a provision of 740 million dollars (658.25 million euros) related to the conviction of UBS for tax evasion in France. The bank said to appeal in cassation against this condemnation.
The fourth quarter also suffered from an unfavorable comparison, while the last three months of 2020 had benefited from a sharp increase in transaction volumes.
However, analysts on average had expected a lower quarterly net profit of $863 million, according to a consensus provided by the bank.
“We find the fourth quarter results solid, with the continuation of a good activity trend in all segments and an impressive cost control this quarter”, write in a note the analysts of Jefferies.
TARGETED ACQUISITIONS
UBS has set a more ambitious target for its cost/income ratio, which it expects between 70% to 73% against a previous forecast of 75% to 78%.
The establishment also intends to increase the return on its core capital (common equity tier 1) between 15% and 18%, against a target of 12%-15% previously.
UBS, which is looking to grow its wealthy client base, unveiled a new digital service for its US clients in October and last week announced the acquisition of California-based online wealth management firm Wealthfront for $1.4 billion. of dollars.
UBS said on Tuesday it is considering other targeted acquisitions and wants to expand its digital offerings to recruit influential clients in other key markets.
“We can expand our portfolio, access new customers, reduce cost to serve and drive long-term growth,” the bank said in a statement. “Going forward, we anticipate similar patterns in the rest of the world.”
UBS said it wanted to increase its assets in wealth management, asset management and its home market in Switzerland to $6 trillion, from $4.6 trillion currently, without disclosing a timeline.
DYNAMISM OF WEALTH MANAGEMENT
UBS overcame the COVID-19 pandemic thanks to buoyant markets and an increase in transactions from its high net worth clients.
Its performance contrasts with that of rival Credit Suisse, which issued a fourth-quarter earnings warning after being hit by a series of scandals.
In the fourth quarter, UBS’s wealth management business continued to experience high levels of client activity, with increases in revenue from loans, recurring commissions and transactions, which led to a 13% increase in operating profit.
The asset management business saw its pre-tax profit fall 17%, with the bank citing “more normalized levels” for fees. The profit of the investment bank, on the other hand, rose by 35%, thanks to the dynamism of trading activities and mergers and acquisitions.
(French version Dagmarah Mackos and Valentine Baldassari, edited by Blandine Hénault)
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