UBS (NYSE:UBS) gave investors a welcome surprise by reporting a far better-than-expected performance for the first quarter of the year on April 30. The largest Swiss bank generated CHF 7.8 billion ($8.3 billion) in net revenues for the period -- the highest since Q1 2011, backed by a strong performance from its equity trading unit as well as from continued growth in the size of assets for its cornerstone wealth management business.
The figures definitely put to rest any remaining doubts among investors about the health of the Swiss bank, which has been forced to clean up its business model in the wake of a $1.5 billion LIBOR-related fine, even as it worked frantically over the latter half of 2012, to shore up its balance sheet to comply with the world's most stringent capital requirement rules. The overall performance reinforces the views we put forward this January in our article "UBS Enters 2013 Revived Following Transformative Year." It is no surprise that the bank's shares rose 6% over trading following the earnings announcement.
We have updated our price estimate for UBS stock from $18 to $19 to factor in the higher growth rate in the bank's wealth management assets than what we forecast earlier. The new price estimate is less than 10% ahead of the current market price.
Equity Trading Desk Performance Grabs the Spotlight
When UBS announced the rather drastic decision of reducing its fixed-income business to a shadow of its former self by directing a majority of the proposed 10,000 job cuts towards the division, it triggered debates about the profitability of its overall investment banking business over the coming years. The singular focus on equity trading meant that the unit would have to be perform better, and more consistently in the future.
And the results for Q1 2013 show that the unit has not let expectations down. The equities trading desk roped in a handsome CHF 1.2 billion ($1.3 billion) in revenues this time around, aided by the rallies in equity markets around the globe. This coupled with the improvements on the expense side, as a result of the bank's elaborate cost-cutting measures allowed the investment banking division to rake in pre-tax incomes of just under CHF 1 billion.
Wealth Management Business Grows Around the World
Having remained in the back-seat for quite a while now UBS's wealth management operations showed why they are still the bank's most dependable business with the Swiss and International wealth management unit generating nearly 10% more income in Q1 2013, compared to Q1 2012 and Q4 2012. The Americas wealth management unit also posted an overall better performance compared to the previous quarter, while revenues were just shy of the record figure recorded in Q4 2012, the pre-tax income was a solid 16% better.
And this improvement comes almost entirely from the growth UBS's wealth management assets have seen over the period. The size of invested assets jumped 6% sequentially for both the Swiss and International wealth management unit, as well as the Americas' wealth management unit, to settle at CHF 870 billion ($930 billion) and $891 billion respectively. And this growth is only expected to continue over the coming quarters as UBS focuses on the wealth management business with renewed vigor.
Disclosure: No positions.