Switzerland’s largest lender, UBS Group AG stocks, surged to its highest level in four years as the bank surprised the market by pledging to repurchase its shares worth $5 billion apart from posting bullish costs and profit targets.
UBS’s fourth-quarter profits and revenue beat analysts’ estimates and gained 7.5%, the highest since 2018 in trading in Zurich. The buyback surpassed expectations while analysts saw new profit and operating cost goals as ambitious even as demand for talent drove up bankers’ salaries.
In his second year as CEO, Ralph Hamers provided more insights to investors about his plans to revamp the bank’s digital operations after it bought Robo-advisor WealthFront for $1.4 billion. Experts welcomed the decision to upgrade the projections after his first-year tenure ended in cosmetic fixes only.
Andrew Coombs, an analyst at Citigroup, is expecting a better focus on capital returns plans in 2022. He said that UBS improved its equities and fixed income market share in the last quarter.
The company faced a $2 billion tax penalty from the French Supreme Court. It was also hit by $470 million charges related to the case while Hamers focused the employees on plans.
The new provisions add to $505 million already set aside as contingent liability. A French court ordered the bank to pay $1.8 million in December as a penalty for laundering illegal funds by providing services to customers on how to hide assets from tax authorities.
The new targets provide a yardstick to the stakeholders after the CEO’s ambitious plans to go digital and focus on the lower segment of wealthy clients as the bank has cleared its old goals by clear margins.
The third quarter saw UBS return on CET1 capital of 20.8% against its 15% -18% target. The new cost-to-income ratio goal is 70% to 80% against its earlier target of 75% to 78%.
The pandemic cushioned Hamer’s first few months, this saw global soaring wealth from stock markets and real estate prices. UBS expects more client activity in the first quarter compared to the fourth quarter. However, geopolitical and economic concerns can affect asset prices.
The investment posted surpassed expectations and posted better pre-tax profits of $713 billion backed by a capital market with highly leveraged revenue and a 4% increase in equity. The credit and forex business also gained while peers saw a decline during this period.
UBS provided some insights into its rationale for investing in Wealthfront and focusing on the affluent segment. The revenue from the global pool for clients between $1 million and $5 million is projected to grow 47% up to 2025, and millennials’ wealth to grow five times faster than the baby boomers. UBS sees acquisition allowing the bank to tap into potential revenues in the future.
In a conference call, CEO Hamers said that UBS would also consider bolt-on acquisitions. The rising costs in hiring and retaining talent are because of the boom in financial services and deal-making, which saw compensation rising to its highest in the quarter in the last two years. The bank expects an additional boost of $800 million towards extra net interest income for 2022.
