UBS Group AG (UBS - Free Report) reported fourth-quarter 2017 net profit attributable to shareholders of CHF 955 million ($967.7 million) on an adjusted basis, up around 25.2% from the prior-year quarter. Results exclude deferred tax expense.

Including deferred tax expense, net loss attributable to shareholders came in at CHF 2.2 billion ($2.23 billion) compared with net income of $636 million recorded in the prior-year quarter.

Results displayed rise in net fee and commission income (up 3% year over year) and higher trading income (up 4% year over year), partially offset by decrease in net interest income (down 5% year over year). Notably, the quarter benefited from the company’s continued focus on expense management.

For 2017, net profit attributable to shareholders was CHF 5.3 billion on an adjusted basis, up 23.3% from the prior year. Including one-time adjustments, net income came in at CHF 1.2 billion, down 62.5% from the prior year.

The company recorded improved profitability in Global wealth management, Wealth Management Americas, Personal & Corporate banking and Wealth Management units. However, performances in Investment Bank and Asset Management units were disappointing.

Constant Cost Control Reflected, Operating Income Stable

Excluding the significant items, UBS Group AG’s adjusted operating income remained almost stable compared with the prior-year quarter at CHF 6.9 billion ($6.99 billion).

Adjusted operating expenses were down 3.4% year over year to CHF 5.7 billion ($5.8 billion). Expenses included provisions for litigation, regulatory and similar matters of CHF 39 million ($39.5 million), a whopping 85.2% year over year.

Business Division Performance

The global wealth management division’s adjusted operating profit before tax came in at CHF 1.03 billion ($1.04 billion), up 18% year over year. U.S. dollar interest rate rises and elevated invested assets, along with loan growth, mainly aided revenues. Net new money came in at CHF 13.8 billion in the quarter.

The Wealth Management division’s adjusted operating profit before tax jumped 25.2% year over year to CHF 640 million ($648.5 million) in the reported quarter. Increased revenues and lower litigation provisions, along with reduced operating expenses, mainly led to the upsurge. Notably, net new money remained strong during the quarter.

Wealth Management Americas division’s adjusted operating profit before tax jumped 9% from the prior-year quarter figure to CHF 390 million ($395.2 million). Notably, net new money was a negative during the quarter.

The Asset Management unit’s adjusted operating profit plunged 26% year over year to CHF 116 million ($117.5 million) in the quarter, marred by lower revenues due to the sale of fund administration servicing units in Luxembourg and Switzerland.

The company’s Investment Bank unit’s adjusted operating profit before tax came in at CHF 168 million ($170.2 million), down 51% from the prior-year quarter. Low volatility and reduced client activity levels led to a decrease in Foreign Exchange, Rates and Credit revenues, partially offset by higher cash equities and derivatives revenues. Moreover, advisory revenues declined due to lower fee pool in mergers and acquisitions.

Personal & Corporate banking division’s adjusted operating profit before tax was up 8% year over year to CHF 428 million ($433.7 million). Funding cost, elevated expenses and interest rate headwinds were offset by higher transaction-based and recurring net fee income. Notably, annualized net new business volume growth for personal banking was 1%.

Corporate Center reported adjusted operating loss before tax of CHF 159 million ($161.1 million) compared with a loss of CHF 275 million witnessed in the year-ago quarter.

Capital Position

As of Dec 31, 2017, UBS AG's invested assets were CHF 3.18 trillion ($3.26 trillion), up 13.2% year over year. Total assets came in at CHF 915.6 billion ($937.8 billion), descending around 2.1% year over year.

UBS Group’s phase-in common equity tier (CET) 1 ratio was 14.9% as of Dec 31, 2017, compared with 16.8% as of Dec 31, 2016. Furthermore, phase-in CET 1 capital dipped 5.8% year over year to CHF 35.6 billion ($36.5 billion) as of Dec 31, 2017. Fully applied risk-weighted assets climbed 6.6% year over year to CHF 237.5 billion ($243.3 billion).

Outlook

Wealth management client activity levels have improved on optimism among investors.Nonetheless, management remains concerned about geo-political tensions and underlying macroeconomic uncertainties, which have been contributing to client risk aversion and low-transaction volumes. Though investors’ sentiments have improved, a sustained increase in client activity levels is not visible.

The company also highlighted several concerns, including headwinds from negative interest rates, though partially mitigated by the favorable impact of increasing U.S. dollar interest rates and normalization of monetary policy. Further, the proposed changes to the Swiss bank capital standards and global regulatory framework in Switzerland, will lead to higher capital requirements and expenses. However, amid a challenging operating environment, the company remains committed to the execution of its strategies.

Our Take

Results highlight a decent quarter for UBS Group with its major units, displaying growth, though Investment Bank disappointed. We remain optimistic as the company managed to sustain profitability excluding tax expense related to the recent U.S. tax reform, amid a number of headwinds witnessed in the quarter. UBS Group remains focused on building its capital levels. Restructuring initiatives, including cost control, are encouraging.
 

UBS AG Price

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Currently, UBS Group AG carries a Zacks Rank #3 (Hold). 

Among other foreign banks, Deutsche Bank AG (DB - Free Report) and Mitsubishi UFJ Financial Group, Inc. (MTU - Free Report) will report December quarter-end results on Feb 2, while HSBC Holdings plc (HSBC - Free Report) will report on Feb 20.