UBS Group AG yesterday signaled that the worst hit of the COVID-19 pandemic on its balance sheet might be over, prompting the bank to consider reviving shareholder payouts after costs to cover soured loans peaked in the first half.
The Swiss bank — while warning there was plenty of uncertainty ahead — attracted US$9 billion of net new money at its private banking business in the second quarter and posted higher transaction-based income as clients boosted trading in volatile markets.
While credit loss expenses are to remain high in the coming months, they would not match the US$540 million posted in the first half, it said.
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UBS, which serves mostly wealthy clients and does not do a lot of corporate lending, has been relatively shielded from the defaults which prompted Wall Street firms to set aside tens of billions of dollars to cover an expected wave of bankruptcies.
At the same time, it also benefited from the trading bonanza that saw Wall Street firms post record profits — fixed-income trading revenue at the investment bank more than doubled.
The issue of dividend payments and buybacks has been controversial because of the relief that banks have received from regulators to help them withstand the crisis.
UBS and Credit Suisse Group AG were among the last European firms to delay their dividend after the Swiss regulator followed its European counterparts by pressuring lenders to suspend payouts because of the economic uncertainty.
UBS chief executive Sergio Ermotti said that he is now confident that the bank would pay the second tranche of its dividend in the second half. UBS stopped a US$450 million buyback program in March because of the pandemic.
The bank added US$272 million to its loan loss provisions during the second quarter, slightly below estimates, with Europe starting to reopen businesses.
The bank said that the majority of its credit exposures are of high quality, in part reflecting the wealth of its home nation.
The wealth unit, the bank’s largest contributor of revenue, said that net new money was positive across the regions.
Recurring net fee income declined 8 percent at the wealth management business, mostly reflecting lower invested assets at the beginning of the quarter.
Profit at the wealth unit was supported by a strong performance in Asia, which made up for a 37 percent drop in profit year-on-year for the business in the Americas.
Ermotti, who is to step down at the end of October, has scaled down trading after the financial crisis, though the bank still has a sizeable equities business.
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