Analyst Note| Johann Scholtz, CFA |
Narrow-moat UBS reported net attributable profit of $1.8 billion for the first quarter, more than double the $722 million it reported a year earlier and ahead of the $1.6 billion expected by the consensus of analysts polled by UBS itself. UBS followed in arch rival Credit Suisse’s and other global peers’ footsteps in taking a hit against its profits from prime broking exposure to family office Archegos Capital. UBS’ loss was "only" $774 million, compared with the CHF 4.4 billion hit that Credit Suisse took in its first-quarter results. The Archegos loss will dominate the headlines and obscure the true strength of UBS’ underlying operating performance. Revenue would have increased 19% year on year. In contrast to many of its peers, UBS' revenue increase was not solely the result of volatile investment banking trading income or an increase in brokerage from private clients, but recurring wealth management fees also grew a robust 8%. Operating expenses grew 8% as variable compensation increased as a result of the strong operational performance. Loan-loss provisions swung into a net credit as asset quality remained sound. The release from provisions would have been even greater if UBS had not applied a management overlay to reflect its caution regarding the outlook for the rest of the year. We maintain our narrow moat rating and CHF 14 fair value estimate.