Higher interest rates help drive UBS to Q4 net income beat

By Scott Kanowsky

Investing.com -- UBS Group AG (SIX:UBSG) has reported better than expected net income in the fourth quarter, as elevated interest rates helped offset a drawdown in trading volumes, although a muted reaction from analysts weighed on the stock in early trading on Tuesday.

The Swiss lender posted net profit attributable to shareholders of $1.65 billion for the three months ended on December 31, up 23% compared to the same period in 2021 and above Bloomberg consensus forecasts of $1.29B. Its profit for the year increased to $7.6B.

The bank's key global wealth management business undergirded the increase. The unit's pre-tax profit surged by 88% year-on-year due in part to a jump in net interest income as rising borrowing costs led to higher deposit margins. However, this uptick was dampened by a decrease in average deposit volumes, reflecting investment caution from private clients caused by geopolitical uncertainties and a broader market downturn.

Operating expenses at the division also dropped by 17%, although this was a favorable comparison to the final quarter of 2021, when UBS was hit by $657 million in litigation provisions linked to a tax evasion case in France.

Elsewhere, the spike in rates helped boost pre-tax earnings at UBS' personal and corporate banking unit by 51%. But the same figure at its asset management division slipped by 63% to $124M, as negative market trends and foreign currency effects led to a steep decline in fees. Investment banking revenue decreased to $1.68B, missing analysts' estimates, following a dip in equities sales.

Group chief executive Ralph Hamers called the quarterly returns "solid" despite "a challenging macroeconomic environment, persistent inflation, rapid central bank tightening, the Russia–Ukraine war, the impact of COVID in China, and other geopolitical tensions."

Analysts had a mixed reaction to the results, sending shares lower. Analysts at Jefferies noted that the better-than-expected net income was helped by one-off revenue benefits and a lower tax rate, adding that the "bar is high" for UBS given its shares are trading near 52-week highs.

Looking ahead, UBS expects first-quarter top-line results to be positively influenced by higher client activity levels as equity markets show signs of recovery from a sharp downturn last year.

The group proposed a dividend per share of 55 cents for the 2022 fiscal year, in line with estimates. It also bought back $5.6B of shares in 2022, and plans to repurchase over $5B more in 2023.

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