UBS Now Fee Driven

UBS Now Fee Driven

Swiss banking giant UBS beat analyst expectations by posting a small increase in net earnings, with a rise in fees helping balance out a reduction in interest income.

The one percent increase in second quarer net profits to $1.39 billion (1.24 billion euros) was accompanied by a similar dip in operating income to $7.53 billion euros.

The results easily beat the analyst consensus of $991 million in profit on $7.1 million in revenue established by Swiss financial news agency AWP.

Chief executive Sergio Ermotti said the bank “achieved the highest second quarter net profit since 2010.”

However operating profit at its global wealth management and investment bank dropped, although it increased in the asset management and personal and corporate banking divisions.

Net interest income, what a bank earns from traditional lending operations, fell from both the same quarter last year and the first three months of the year, to $1.03 billion.

The ultra-low or even negative interest rates, like in Switzerland, that central banks have put into place to boost economic activity have made it difficult for banks to earn money from lending, and many including UBS have shifted to rely more on fees to generate revenue.

UBS saw its net fee and commission income rise to $4.47 billion.

“Once again we showed the strength of our business model and its ability to generate competitive returns even with market conditions far from last year’s,” said Ermotti.

Going forward, the bank noted both political uncertainties and geopolitical tensions, as well as central banks having indicated they plan to loosen monetary policy.

“A sharp drop in interest rates and expected rate cuts will continue to adversely affect net interest income compared with last year,” it warned, while saying diversification as well as income from invested assets should help mitigate the effects.

UBS shares were up 2 percent in midday trading, while the Swiss market index was up 0.4 percent overall.

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S. Jack Heffernan Ph.D. Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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