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(Bloomberg) -- UBS Group AG Chief Executive Officer Sergio Ermotti is reviving investors’ expectations for a share buyback after the bank’s capital buffers rebounded and profit increased.
The bank’s CET1 capital ratio rose to 13.7 percent in the three months through September, up from 13.5 percent in the second quarter. UBS has pledged to return at least half its net profit to investors provided the ratio remains above 13 percent. Revenues rose across international wealth management, with net margins, a key profitability measure, little changed from the second quarter.
“The diversification of the group is shining through," David Moss, a fund manager at BMO Global Asset Management in London, wrote in an emailed response to questions. “UBS has produced a solid overall set of results and better than expected capital ratios," adding that he has "high confidence" in the dividend but sees a share buyback as some way off.
Ermotti is holding out the prospect of returning more funds to investors if legal and regulatory costs decline at the bank. With UBS now needing less cash for regulatory requirements and legacy legal issues, Ermotti said in a Bloomberg Television interview on Friday that the bank will “eventually” complement the bank’s cash dividend with a buyback. Still, the bank sees no let-up in the political and economic environment that has kept investors away from trading.
“We expect the global economic recovery to strengthen further, but geopolitical tensions and macroeconomic uncertainty still pose risks to client sentiment," UBS said in its earnings statement. “In particular, high asset prices, uncertainty over central bank balance sheet and interest rate policies, seasonality factors and the persistence of low volatility may continue to affect overall client activity.”
The shares rose as much as 2.3 percent to 17.60 francs and were trading 0.5 percent lower at 17.13 francs as of 11:16 a.m. in Zurich. They have gained about 11 percent this year.
Wealth management, the bank’s core business, contributed 587 million francs in pretax profit, up from 504 million a year earlier as investors showed more appetite for risk. Company-compiled estimates were for the bank to report 583 million francs of profit for the unit and 897 million francs in total.
Andrea Orcel’s securities unit delivered 269 million francs in pretax profit from 161 million francs a year earlier despite lower volatility, driven by equities and advisory businesses. Orcel in September flagged that Europe’s sweeping MiFID II rules will make it even harder for investment banks to make money from trading stocks, a business where few are currently breaking even.
Swiss regulator Finma has been reviewing bank assets in preparation for tougher global standards and UBS is warning that implementing Switzerland’s new banking standards and more changed to national and international regulation for banks will result in increased capital requirements, funding and operating costs.
UBS is one of several big banks that have yet to settle longstanding claims surrounding toxic mortgage securities in the years before the financial crisis. In another outstanding case, the bank has been ordered to stand trial in France in a long-running investigation in allegations that the Swiss bank helped wealthy clients avoid taxes.
“The 13.7 percent CET 1 ratio is clearly higher than expected and goes counter to previous UBS guidance," Andreas Brun, an analyst with Mirabaud Securities in Zurich, said on Friday by phone. “While I still have concerns about the impact of RMBS and Basel IV on capital returns - this will help as the CET1 ratio is going up."
(Updates with shareholder, analyst comment from 3rd paragraph.)
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