UBS results to reflect European banks 4Q performance
UBS Group AG will kick off European bank earnings on Jan. 22. The wealth management operations, excluding the Americas, are the bank's biggest contributor to profit.
After veteran Juerg Zeltner surprised investors by stepping down last month as head of the business, attention will be focused on his successor Martin Blessing and any changes to the strategy or targets for the business. The bank last outlined broad targets in 2014, and some investors are pushing for an update.
The gross margin at the unit has been declining amid low interest rates and the end of bank secrecy has prompted some international clients to repatriate their money, though that process is tapering off. UBS has told investors to expect outflows of around 8 billion francs in the fourth quarter related to such regularization.
UBS will provide some insight into how European banks weathered the U.S. tax reform and what they plan to do with future windfalls. Investors in U.S. banks have largely brushed aside writedowns tied to the reform which cost Citigroup Inc. alone $22 billion focusing instead on what the lower rate means for future dividends and buybacks. Deutsche Bank and Credit Suisse Group AG have also disclosed one-time charges, with both banks now at risk of posting a third consecutive annual loss.
UBS is guiding for a 2.8 billion-franc reduction in net income in the fourth quarter because of the U.S. tax change. The bank is still expected to end the full year with a profit, though its quarterly bottom line will probably show a shortfall of 2.15 billion francs ($2.24 billion), according to UBS's own survey of analysts.
US investment banks including Bank of America Corp. and Citigroup have emphasized that they plan to pass on the future benefits of the tax cuts to investors by returning capital. Goldman Sachs Group Inc. broke from the pack, saying the short-term hit to its capital from taxation of retained foreign earnings meant it would slow buybacks in the first half of this year.
UBS CEO Ermotti has said that once legal and regulatory costs declined in coming years, his bank will be in a position to return more capital through dividends and buybacks. UBS has a policy of returning at least half its net profit to investors, provided its CET1 capital ratio remains above 13 percent. Softer-thanexpected capital requirements from new Basel III rules announced in December have further piqued investor interest in future payouts.
"We're on a good path, we are almost there, actually we are there," Ermotti said in October. "Now people need to see the cash flow coming back through dividends or share buyback." UBS's investment bank, meanwhile, has been hit by persistently low volatility, which eroded client activity.