UBS is also likely to have lost its feathers because of the tumbling stock exchanges. But observers are already looking to the future; and they are interested in something else.
New UBS President Colm Kelleher has taken office at the bank at a challenging time.
Colm Kelleher was probably hoping for a more pleasant start. The new UBS President took office after a record year. It was the bank’s best year since the 2007/08 financial crisis. Kelleher wants to use the favor and promote UBS to investors, especially in the USA, as the global leading bank again and erase the “Europe malus” that weighs on its valuation on the market. Their stocks are trading just below book value. That’s not terribly bad. But at JP Morgan, the ratio is 1.3. Morgan Stanley, Kelleher’s employer for many years, even comes in at around 1.5 (see chart).
For a roadshow like this, it is important to be able to show yourself from your best side. But right now the financial markets are experiencing one of the weakest half-years since 2008: Inflation is oppressively high worldwide, the central banks are now counteracting it, and share prices are falling. For asset management banks, such as UBS is and will remain one at its core, this promises meager returns.
Inside and outside the bank, it is therefore of interest how badly UBS has been hit by the turmoil. In any case, there is some uncertainty. The Swiss number one is the first large European bank to present the figures from its second quarter. The US big banks, which traditionally reported earlier, suffered particularly from the absence of IPOs and other capital market transactions, but partially compensated for this in the trading business. UBS should benefit from this shift within investment banking. The Swiss wealth management banks, which have already submitted their accounts, notably Julius Baer and EFG, are meanwhile struggling with the decline in client assets. However, they managed to keep loan defaults at a very low level.
At UBS, investors should pay particular attention to four aspects.
Firstly, how well has UBS fared in the global wealth management business held worldwide? How much client wealth has she lost and how badly is revenue hurt? The analysts will also pay attention to whether the defaults due to failed loans to wealthy customers have remained as low as before. And whether the bank was still able to attract new money when customers, especially in Asia, are still very risk-averse.
The ongoing problems in China, ultimately caused by the Covid-19 measures, are eventually affecting the entire continent. In Asia, UBS and its clients have been taking risks out of portfolios since the summer of 2021. This puts pressure on (loan) income, the inflow of new money and the bank’s assets under management. The results in global wealth management are perhaps of particular interest because Iqbal Khan was only recently given sole leadership of the largest UBS division.
Secondly, how much do they help UBS rising interest rates worldwide? The interest rate hikes by the Federal Reserve have probably already had an impact in the dollar area, while the effects in the franc and euro area will only be reflected in the results in the second half of the year. In the medium term, rising interest rates could stimulate the Swiss business in particular, which has held up well recently under the leadership of Sabine Keller-Busse.
Third, if UBS wants to present itself in a good light to investors, it has to offer them something. Recently, however, several financial analysts have doubted that UBS will be able to distribute its cornucopia to shareholders as generously as it has announced. The responsible analyst at Barclays, for example, has just downgraded UBS because of doubts that it Share Buyback Program can go ahead as planned. The bank management would probably like to teach him otherwise, but in the long run they can only distribute profits to the shareholders that they actually earned.
Fourth, in the medium term there is the question of how quickly the high IT investments of UBS are already being translated into new products and services and into more efficient processes. At the beginning of the year, UBS announced that it would save around 1 billion dollars by 2023, but would immediately reinvest the money in digitization. In the US, UBS has already bought a digital wealth manager, Wealthfront, which is intended to open up new, younger customer segments for the bank. An interim status on the progress of the cost and digitization program would certainly be of interest.