UBS wary of wealth management sting in Asia as investment bank carries Q1 profit

UBS Group AG's first-quarter profit jumped year over year, thanks to the strong performance of its investment bank, but the Swiss institution warned of an income drag at its flagship wealth management division, particularly in the Asia-Pacific region.

The bank's net profit attributable to shareholders rose 17% to $2.14 billion in the quarter from $1.82 billion a year ago. Its investment bank yielded a pretax profit of $929 million, the highest quarterly figure in more than two years. In the year-ago period, pretax profit at the division was $412 million, taking into account losses related to the collapse of U.S. family office Archegos Capital Management LP.

Global markets revenues within the investment bank rose 59% year over year to reach their highest-ever quarterly level, according to CFO Kirt Gardner. These were primarily driven by higher income from equity derivatives, rates and foreign-exchange products.

Meanwhile, inflation, the monetary policy response to it and the war weighed on investor sentiment in the quarter across advisories and capital markets, Gardner said April 26 in his last earnings presentation to analysts. He is set to be replaced by Sarah Youngwood in May.

APAC woes in wealth management

Russia's invasion of Ukraine also affected the performance of UBS' global wealth management division, where pretax profit slipped to $1.31 billion from $1.41 billion a year ago. Transaction-based income declined 19% year over year to $954 million due to negative client sentiment, especially in Asia-Pacific, where transaction revenues fell about 40%.

Transaction and recurring revenues in the division will likely continue to suffer from geopolitical tensions and macro uncertainty in the second quarter, Gardner said. In Asia, this will be exacerbated by the impact of lockdown measures amid a spike in COVID-19 cases.

Asian markets overall have performed poorly versus other regions in recent quarters, according to Gardner. The bank expects the muted investment appetite to persist in the region amid a "wait-and-see pattern in terms of active investments," said CEO Ralph Hamers.

Overcoming headwinds

Still, UBS has some levers to offset these headwinds, including expected rate hikes in the U.S. and a projected $1 billion increase in net interest income, or NII, through the year, Gardner said.

The bulk of the NII increase is anticipated in the second half, but 15% growth is forecast in the second quarter relative to the first. First-quarter NII rose to $1.14 billion from $997 million a year ago.

Shares of UBS were up about 2% in morning trading in Zurich.