UBS Group AG posted higher than expected profit in the second quarter, as investment banking revenue and progress in integrating Credit Suisse helped bolster Chief Executive Officer Sergio Ermotti's efforts to return capital to shareholders.
The Zurich-based bank said net income was $1.1 billion, about double analyst estimates. Growth in deal-making revenue at the investment bank beat many Wall Street peers, while a lower than expected loss at the unit dedicated to winding down Credit Suisse legacy assets helped offset a miss in the wealth management division.
A year after completing the takeover of Credit Suisse, UBS is on track for pre-merger levels of profitability, and plans to repurchase some $1 billion in shares this year. Yet tougher Swiss regulation being designed over the next couple of years could mean sharply higher capital demands, prompting analysts to question whether the bank will have to reduce its payouts.
"I don't think this will happen," Ermotti said in an interview with Bloomberg Television's Francine Lacqua. "We will find out probably later this year, early 2025 the direction of travel. Then we can make an assessment."
UBS shares were up 2% at 9:42 a.m. in Zurich.
Ermotti said the bank has entered technical discussions with the government and regulators over plans to overhaul Switzerland's rules around bank capital and liquidity. The revamp is one of the political consequences of the Credit Suisse collapse last year. Despite being called on to rescue its former rival, the bank is now in the cross-hairs due to its increased size and systemic relevance.
The Swiss parliament is set to release its investigation into the Credit Suisse crisis toward the end of the year, which will feed into the design of new ordinances and legislation governing capital. In particular, UBS faces much higher requirements to back its foreign subsidiaries with capital, with some estimates seeing the increase as much as $25 billion.
Analysts broadly saw the results as solid, though Deutsche Bank AG noted that uncertainty around the capital return plans remains high.
In its outlook, UBS said it sees "positive investor sentiment" into the third quarter, and continued momentum in client transactions. Elections in the U.S. and geopolitical tensions are expected to lead to higher market volatility in the second half of the year, the bank said. Lower interest rates and client portfolio shifts could dampen interest income, it said.
