UBS’s long awaited recovery begins to take shape
UBS’s worst days may be behind it. The Swiss bank has said it expects to make a pre-tax quarterly profit of at least 2.5 billion Swiss francs ($2.4 billion). With two profitable quarters now under its belt, it finally looks as if UBS’s turnaround is under way.
The firm has not provided a divisional breakdown, but it seems as if the FICC division, encompassing fixed income, currency and commodity trading, had a bumper quarter. Last month, the bank confirmed press reports that the division made revenue in the region of $2 billion. It’s an impressive performance for a division that made just a quarter of that in the previous three months. Volatile currency and bond markets, as Greece flirted with default, have helped.
But UBS insiders also say it has been taking market share back from the crisis winners.
It also seems as if UBS is managing to stem the flow of client assets from its private banking and wealth management operations. After UBS lost some 56 billion Swiss francs in the last quarter of 2009, many investors feared those businesses were mortally wounded. Outflows have now slowed to around 18 billion Swiss francs. Analysts had pencilled in withdrawals closer to double that.
There are still doubts about whether UBS can hit its ambitious targets. It is looking for annual pre-tax profit of 15 billion Swiss francs in the “medium term” – some 50 percent ahead of the current earnings run rate. That will be a challenge. Fixed income markets won’t always be in the sweet spot they are currently in. What’s more, UBS still has to show that its private bank can bring in assets — not just staunch the outflow.
But, for now, investors who stuck with UBS after a disappointing fourth quarter are seeing the fruits of their patience. Following the 38 percent rise in the stock price since its mid-February low, UBS now trades on about 12 times this year’s earnings. That is no longer especially cheap. But with the firm’s recovery looking more assured, the stock could well have further to run in the short term.