UBS beats profit forecast as Investment Banking outperforms in Q4

Investing.com -- UBS on Tuesday posted a stronger-than-expected performance in the fourth quarter, reporting a net profit of $770 million, well above the $483 million anticipated by analysts. 

The results included $1.26 billion in restructuring and integration-related expenses as well as a $656 million benefit from pull-to-par effects. 

Adjusted pre-tax profit came in at $1.87 billion, surpassing consensus estimates by 30%. Despite higher-than-expected credit provisions of $229 million, adjusted pre-provision profit also exceeded expectations by 29%.

The bank’s Global Wealth Management division saw revenue come in slightly ahead of consensus, though pre-provision profit missed expectations. 

“There is a lot going on in the Q4 update but a Q4 beat (even if largely driven by IB), a step up in the 2025 buyback (confirming consensus expectations), a repatriation of capital from foreign subs and measurable targets to improve the US WM are positives. Costs came in higher in some divisions but this could be due to seasonality,” said analysts at RBC Capital Markets in a note.

Net interest income in GWM rose 4% from the previous quarter, defying earlier guidance of a mid-single-digit decline. 

However, transaction-based income dropped 9% quarter-over-quarter, although it was up 12% from a year earlier. 

Net new assets in the wealth management segment reached $17.7 billion, down from $24.7 billion in the third quarter, while the number of financial advisors declined by 1%.

Investment banking was a bright spot, with revenue climbing 3% quarter-over-quarter, driven by a 21% surge in global banking. 

Markets revenue dipped 2% from the previous quarter but was up 44% from a year ago, supported by strong performances in equities and fixed income. Risk-weighted assets in the division declined by 7% during the quarter.

In contrast, UBS’s asset management business struggled, with revenue dropping 12% from the third quarter and 7% year-over-year. 

However, cost reductions, including lower headcount, helped offset some of the decline, as operating expenses fell 15%. 

Meanwhile, the Personal & Corporate (P&C) banking segment missed expectations, with revenue flat in Swiss franc terms and net interest income declining 1% quarter-over-quarter. Costs in the unit rose 2% from a year ago.

The bank’s capital position saw a slight miss, with the CET1 ratio at 14.3%, just below the 14.4% consensus estimate, though unchanged from the third quarter. 

UBS expects risk-weighted assets to reach $510 billion by the end of 2026, in line with market expectations.

UBS will return up to $3 billion to shareholders in 2025. This includes a 2024 dividend of $0.90 per share (up from the expected $0.80). 

They’ll also buy back $1 billion in shares in the first half of 2025, potentially followed by another $2 billion in the second half, depending on capital and market conditions. UBS still plans to increase shareholder returns in 2026, unless Swiss regulations change.

Despite economic uncertainties, UBS noted increased investor optimism at the start of 2025, fueled by confidence in U.S. economic growth. 

However, the bank mentioned potential risks from inflation, central bank policy shifts, global trade tensions, and Germany’s upcoming election. 

Net interest income in both GWM and P&C is expected to decline in the first quarter, with GWM seeing a low-to-mid single-digit drop and P&C projecting a roughly 10% decline in Swiss franc terms.

UBS also noted a shift in its interest rate sensitivity, with a 100 basis-point increase in rates now expected to have a positive $1.2 billion impact on full-year net interest income, down from the previously projected $1.7 billion. 

Conversely, a 100 basis-point decline in rates is expected to have a $0.6 billion impact, up from an earlier estimate of $0.3 billion.