UBS (UBS) shares post their best earnings since the global financial crisis

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With a wealthy clientele, the Swiss bakery giant UBS reported $7.5bn (£5.6bn) in annual net profit this morning, signaling more share buyback plans – $5bn in 2022 – and a big dividend increase to $0.50 per share versus $0.37 last year.

Pre-market, UBS shares gained around 3%, but jumped to CHF 18.22 per share after markets opened. Fourth-quarter profits fell from $1.6 billion to $1.3 billion, not helped by 650 million euro provisions for a French tax case in which UBS was found guilty of aiding clients to conceal assets from tax authorities.

Resilient to pandemics

UBS shares are up more than 39% in the past year. The bank was boosted by a long bull run in global markets, strongly supporting its wealth management arm. As for actual losses, many banks and lenders have weathered the Covid-19 crisis much better than initially feared.

The broader banking situation is supported by rising interest rates, which helps banks to borrow cheaply and lend more expensively. Likely rate hikes by the US Federal Reserve this year continue to fuel optimism in the banking sector, even though Fed Chairman Jerome Powell has left plenty of room for interpretation.

In other words, stocks that “depend on the spread”, such as banks, are poised to see higher revenues and profits as the world moves away from “extraordinary measures”.

The banking sector was never designed for a near-zero interest rate environment, hence the rise in stock market valuations.

Pricing at the Fed

In an interview with Bloomberg.com this morning UBS boss Ralph Hamers, former CEO of ING, confirmed he expects four to five Fed rate hikes – no more – but that depends on inflation, a- he declared.

“They can do more or less,” Hamers said. “From an inflation perspective, I actually think 2022 will be a year of two halves.

“In the first half of the year, there is high inflation, but hopefully due to less supply chain tension, less labor market tension and more demand. balanced coming from covid economies…from that perspective, hopefully supported by monetary policy there, inflation will be brought under control by the end of the year.

2022 “harder”

Investors, meanwhile, need to consider whether or not the potential rise in interest rates is locked into bank stock valuations. Michael Kunz of Swiss bank ZKB called UBS’s numbers “respectable” despite the lack of ZKB’s own estimates.

“UBS met our expectations in terms of revenue and even exceeded them in terms of costs. The announcement of the dividend and the share buyback could push the share price up again in the short term.

Beyond that, however, Kunz warns that 2022 could be tougher than 2021, which the abrupt start to the market year so far has signaled.

In a research note sent to Capital.com, Swiss bank Vontobel said UBS’s spending was below expectations but “costs disappointed a number of US peers.” However, Vontobel gives UBS a buy rating.

Where is the strategy going?

  • UBS has confirmed its intention to repurchase $5 billion of shares for 2022.
  • That’s nearly double the amount of share buybacks it made in 2021 – a strong message to the market.
  • Its recent $1.4 billion acquisition of the digital-only platform Wealthfront is the strategy for “the next generation of affluent investors”.
  • We don’t think Hamers’ strategy will be too capital intensive. “Light” capital is more sustainable – and more profitable.

Digitization center

“Our fourth quarter marked the end of a year of sustained growth,” said group CEO Ralph Hamers. “We continued to execute on our strategy and build our global ecosystem. And we will build on this momentum as we deliver on our strategic plans and ambitious new goals.

Hamer’s words are important for another reason. This is the first concrete indication of the direction the bank is taking since it was appointed to the role in November 2020 – UBS shares have risen around 60% since then – and the focus on digitization is a cornerstone of the strategy.

“Together, we can expand our share of wallet, access new customers, reduce cost to serve and drive long-term growth. Looking ahead, we foresee similar models in the rest of the world,” he said. he said UBS’s focus on the younger generation is integral to rolling out the strategy.

However, a cloud lingers: Hamers is still under a Dutch criminal investigation, probing his role at ING and his concerns over money laundering controls. If a judgment went against him, his role at UBS would be difficult, to say the least.

The ups and downs of UBS:

  • The bank was badly damaged in the United States from 2007 to 2010 The Subprime Crisis.
  • Its risk control and corporate governance systems were poor, and many of its clients’ interests were extinguished.
  • Shrinking its investment banking footprint has reduced risk.
  • UBS’s wealth management business continued to grow, helped by the wealth boom in Asia.
  • UBS still controls a large part of the small and medium-sized enterprise (SME) market in Switzerland.

Further reading

UBS bank logo in Switzerland

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