UBS predicts a 'solid performance' for the rest of the year after reporting 9% rise in second quarter net profit

  • Swiss bank UBS announced a 9 percent rise in net profit in the second quarter of the year.
  • Rising interest rates in the U.S. should further support its global wealth management unit.
  • UBS bought back 550 million Swiss francs worth of its own shares.

Swiss bank UBS announced a net profit of 1.28 billion Swiss francs ($1.29 billion) in the second quarter, a 9 percent increase from a year ago, the bank said Tuesday.

UBS pointed said solid global growth had helped its performance and added that expectations of monetary policy tightening in the U.S. should further support its global wealth management unit, though gradually.

Here are some key highlights:

  • Diluted earnings per share were 0.33 Swiss francs ($0.33)
  • Profit before tax stood at 1.68 billion Swiss francs ($1.69 billion) — up 12 percent year on year
  • Pre-tax profit in its Global Wealth Management unit rose 18 percent from a year ago and UBS' Investment Bank division saw a 26 percent rise

The bank had reported a net profit of 1.5 billion Swiss francs in the first quarter of the year. After the latest earnings, the banking group's CEO Sergio Ermotti told CNBC that he doesn't expect any sharp slow down for the rest of the year.

“I am pleased first of all that we had two consecutive quarters where we reached a return on tangible equity above 15 percent," Ermotti told CNBC's Joumanna Bercetche.

"I still stay confident that, like in the last few years, we have been able to mitigate challenging market conditions and deliver good returns to our shareholders. I do believe we will continue to have a solid performance also for the rest of the year," Ermotti added.

Back in April, the Swiss bank had cautioned investors that the second quarter could prove difficult. At the time, Ermotti warned that geopolitical tensions and the rise of protectionism posed threats to investor confidence, which could ultimately dent the bank’s performance.

Such concerns were repeated on Tuesday. UBS said "tough ongoing geopolitical tensions and rising protectionism have dampened investor confidence and remain a threat." The Swiss lender added that muted market volatility has not been very supportive of client activity.

Nonetheless, UBS has managed to meet its share repurchase target for this year. The bank bought back 550 million Swiss francs ($553.45 million) worth of own shares under its three-year goal to buy back up to 2 billion Swiss francs of its shares. Speaking to CNBC, Ermotti kept the door open to further repurchases this year if good opportunities come up, despite the bank already meeting its target.

UBS shares were up by nearly 4 percent following the results.

Cautious mood among US clients

The positioning of U.S. clients has shown relative confidence on the macro-economic side, but it has also shown some caution on equity investments, with investors holding more and more cash.

Ermotti told CNBC that U.S. clients "are still quite constructive in respect of the macro-economic outlook but if you look at their equity portfolio they are quite sticky, they don’t really move around their positions and that’s also explained why transaction volumes are down; and also very important compared to the second part of 2017 their cash balances went up to 5 percent … It it is very high.”

Sergio Ermotti, CEO of UBS AG Group at the World Economic Forum in Davos, Switzerland.
David A. Grogan | CNBC
Sergio Ermotti, CEO of UBS AG Group at the World Economic Forum in Davos, Switzerland.

Generally, investors hold on to cash if they are concerned about the future.

One ongoing concern is the flattening of the yield curve — a line that plots short and long-term interest rates, and whether it will invert shortly. An inverted yield has historically preceded recessions, thus many investors track the performance of the curve to predict where the economy will go in the coming months.

Ermotti told CNBC that an inverted yield curve “in general it’s not going to be good for banks."

"But most importantly, from an historical point of view at least it would be one other leading indicator of recessions or economic troubles ahead and therefore it will play out almost inevitable into market adjustments.”