UBS CEO to CNBC: Our Radical Overhaul Is Working
UBS CEO Sergio Ermotti told CNBC that the company's radical restructuring is working, after the company swung back to profit in the first quarter.
"Overall, the strategy is working and we are starting to see the benefits," Ermotti told CNBC on Tuesday.
UBS easily beat expectations by reporting a first-quarter net profit of 988 million Swiss francs versus forecasts of 510 million Swiss francs, swinging back to a profit after a 1.9 billion Swiss francs loss in the fourth-quarter after heavy Libor-related charges and restructuring costs.
Revenues increased to 8 billion Swiss francs from 6.6 billion Swiss francs from a year ago, driven by a favorable market environment which led to higher client activity in its flagship wealth management unit and strong revenues in the investment bank.
Additionally, restructuring costs and own debt charges were lower than analysts had forecast.
Asked whether he regrets exiting some units in the investment bank, CEO Sergio Ermotti said: Not really. If you look at our biz model it's good for us. We are two-third less capital year on year. We have very good return on attributed equity. So there is no regret we do what is right for our shareholders."
"We are comfortable with the changes we have made and how the business is being executed," he added.
In October, the bank had announced it would massively reduce its investment bank and wind down its FICC business to reduce risk weighted assets and re-balance the focus on its wealth management business. As part of that strategy, the bank aims to cut 10,000 jobs and cut 5.4 billion Swiss francs in costs by 2015.
The investment bank recorded a pre-tax profit of 977 million Swiss francs in the first quarter, smashing analyst expectations. IB revenues increased 74 percent from the last quarter, with growth across all units, but both equity capital markets and equities trading saw triple digit percentage gains compared with the previous quarter.
Even revenues in the FX, rates and credit unit, which it is partially winding down,grew by 103 percent.
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Benefiting from clients' trading activity, UBS saw its gross margin in its core wealth management rise to 91 basis points in the quarter, more than anticipated.
Analysts at Deutsche Bank had only expected a modest improvement in margins, held back by declining net interest margins and weak inflows.
However, analysts were proved wrong as net new money inflows of 15 billion Swiss francs were particularly strong, marking the highest quarterly net inflows since 2007. The wealth management business in the Americas saw another record result with a pre-tax profit of $251 million and saw inflows of $9 billion.
Its Basel III capital ratio of 10.1 percent meeting the Swiss minimum requirement of 10 percent 6 years early.
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UBS struck a cautiously optimistic note going forward, saying its confident that its wealth management business "will continue to attract net new money."
"Investor sentiment is still very fragile, the cash balances of our clients are still the same," Ermotti said. "I would stay cautious and very realistic about the fact that many of the issues out there are still unresolved."
As in previous quarters, UBS warned that a lack of improvement in the euro zone debt crisis, ongoing geopolitical risks, growth concerns and the US fiscal issues could pose "headwinds for revenue growth, net interest margins and net new money."