UBS Group AG yesterday expressed confidence it could withstand a surge in bad loans, while warning that the unprecedented COVID-19 outbreak would put pressure on key streams of income at its wealth management business.
The bank — which posted a 40 percent jump in profit to US$1.6 billion — said that falling asset prices would erode recurring fee income, while low interest rates hit lending income.
Despite an expected drop in client activity, UBS said that the “high quality” of its credit portfolio could shield it from more widespread defaults.
“We can be relatively optimistic about the extent to which credit losses will impact our future,” UBS chief executive officer Sergio Ermotti said in an interview.
“Our business model sees a high degree of concentration in lending exposure in Switzerland and in general to asset-based lending, so where we have a high degree of underlying guarantees,” Ermotti said.
The bank’s focus on managing assets for the wealthy has left it with limited risk from corporate and consumer defaults that now threaten European and US peers, allowing it to put less aside for future losses and post one of its most profitable quarters in years.
UBS provisioned just US$268 million for bad loans during the quarter, a fraction of its competitors.
Banco Santander SA said that it is setting aside 3.9 billion euros (US$4.25 billion), and HSBC Holdings PLC is to take its biggest charge for bad debt in almost nine years, reporting provisions of US$3 billion in the first quarter.
Touting strength across its businesses, the bank is now contending with an economic contraction of as much as 15 percent in the eurozone this year and uncertainty about the duration of lockdowns in key markets, including the US.
Net new money at the wealth management business was US$12 billion, or US$28 billion before US$16 billion of outflows related to its program to charge for deposits.
Yet invested assets had declined 11 percent by the end of the quarter, due to the global market sell-off.
“On recurring fees, it depends very much on where asset levels will be, particularly equity markets,” Ermotti said. “The starting point” for the second quarter “is lower.”
UBS managed to push ahead in its strategy to lend more to its wealthy clients, netting US$3.9 billion new loans in the quarter.
While it scaled back securities trading since the financial crisis, UBS’ investment bank still benefited from volatility in the quarter. Equities trading at its global markets business rose 18 percent from a year earlier, and fixed income revenue almost doubled.
The investment bank took a US$183 million write-down on its leveraged capital markets, corporate lending and real-estate finance portfolios, although related hedges more than offset that.
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