UBS's (UBSG.S), opens new tab second-quarter profit more than doubled from a year earlier, comfortably ahead of expectations, as it joined other major banks in making the most of a surge in trading activity amid market turmoil. Switzerland's largest bank was relatively upbeat about its outlook on Wednesday, saying that it sees a high level of readiness among investors and companies to deploy capital as "conviction" around the macro outlook strengthens. Make sense of the latest ESG trends affecting companies and governments with the Reuters Sustainable Switch newsletter. Sign up here.
CEO Sergio Ermotti, however, took the opportunity to criticise the Swiss government for proposals last month that could increase the amount of capital the bank would have to hold by $24 billion to cover risks that could arise from its foreign operations.
Theories that UBS could easily absorb or mitigate proposed capital increases did not reflect reality, he said in an analysts' call. "We will evaluate all potential and appropriate measures to address negative effects for our shareholders, but any mitigation strategies, even if feasible, would come at a significant cost," he said. "We are strong thanks to our global footprint, not in spite of it," he added.
Net profit attributable to shareholders came in at $2.4 billion, beating a company-provided consensus estimate of $2.045 billion. The results were a "good reminder of the strength of the business model and the fast and relatively smooth integration of Credit Suisse," Deutsche Bank analysts said in note to clients.
In its investment banking division, revenues for global markets surged 25% during a quarter when trading cues were focused on ructions caused by U.S. President Donald Trump's tariff war. At the same time, transaction-based income for its global wealth management division rose 12%. Some of the earnings beat can be attributed to a $427 million net release of provisions and contingent liabilities related to the resolution of a Credit Suisse litigation issue, as well as a net income tax benefit of $209 million.
UBS expects trading and transactional activity to become more normalised in the quarter ahead. But it also said that it was too early to say when deals in the pipeline would be executed.
Integration of its one-time rival Credit Suisse remained on track, UBS said in its second-quarter statement, with one-third of client accounts booked in Switzerland migrated. Cumulative cost reductions reached $9.1 billion, or 70% of expected gross cost savings, it added. UBS was delivering on its capital return plans for 2025 and continued accruing for double-digit growth in its dividend, the bank said. Deliberations in Swiss parliament over capital requirements could take years. The government is concerned about the potential for crises, given that UBS is now the country's sole remaining global bank with a balance sheet about double the size of the economy.
The bank has stepped up contingency planning, sources have said, with one saying senior staff have been told that the need to examine moving its HQ from Switzerland has grown since the government proposed the new rules. Ermotti stressed that UBS was not going to engage in any mitigation before it knows exactly what the final rules are. "We are not going to front-run any new capital regime, that's clear," he said. Other major banks such as Bank of America (BAC.N), opens new tab, JPMorgan Chase (JPM.N), opens new tab, Citigroup (C.N), opens new tab and Morgan Stanley (MS.N), opens new tab also beat estimates in the second quarter as traders cashed in on volatile markets.
Though HSBC, also reporting on Wednesday, posted a 26% slide in first-half pretax profit, missing analyst estimates, as its China losses mounted.
