Investment bank success leads to profitable Q1 for UBS

Swiss bank buoyed by strong performance in investment banking unit which sees massive jump in profits.

UBS saw pre-tax profits jump 42% in the first quarter of the year due to cost reductions across its business and strong growth in its investment banking arm.

The Swiss bank reported adjusted profit before tax of CHF1.93 billion, a 42% rise, while operating income increased by 8%.

The investment banking business saw a particularly strong start to the year after a strong ending to 2016. Total revenue for the division hit CHF2.1 billion, up from CHF1.88 billion in the same period of 2016. The firm’s equities business grew sales in Q1, up from CHF891 million in Q4 2016 to CHF934 million. This was also higher than a year ago, when revenue was CHF920 million.

The investment bank said it has benefited from higher client activity and successful cost reductions.

Foreign exchange, rates and credit also grew on a quarterly basis, up from CHF419 million in Q4 2016 to CHF452 million in Q1 this year. However, this was lower than the CHF483 million seen in the same period last year.

The bank warned of potential troubles ahead, though added it believes it is well prepared for difficult market conditions.

“While the global recovery is likely to continue, macroeconomic uncertainty, geopolitical tensions and divisive politics pose risks that may affect client sentiment and transaction volumes. Low and negative interest rates, particularly in Switzerland and the eurozone, continue to present headwinds to net interest margins,” UBS said in a statement accompanying its results.

“These may be partially offset by the effect of higher US dollar interest rates and a further normalisation of monetary policy. Implementing Switzerland’s new bank capital standards and the proposed further changes to the international regulatory framework for banks will result in increased capital requirements, interest and operating costs. UBS is well positioned to mitigate these challenges and benefit from further improvements in market conditions.”

UBS has bucked the trend of other European investment banks, which have seen relatively weak first quarter results, in contrast to many of the major US banks which have benefited from a strong start to the year.