UBS Group AG expects its net interest income in 2022 to increase by some $1 billion year over year as it benefits from rates rises that have cushioned the blow of financial market weakness.
The Swiss bank expects its net interest income, or NII, to be $200 million higher in the fourth quarter than in the third quarter, when it totaled $1.60 billion, according to CFO Sarah Youngwood, speaking during the release of the bank's third-quarter earnings. Two-thirds of the increase will be from the flagship global wealth management division, and the rest will be from the personal and corporate banking business, Youngwood said Oct. 25 during the presentation to analysts.
For 2023, group NII is expected to be higher than the annualized figure for the fourth quarter, as further upticks are expected from NII on exposures in euros, Swiss francs and British pounds, CEO Ralph Hamers said. Meanwhile, the U.S. dollar NII is expected to peak at the beginning of 2023 at the latest.
The U.S. dollar has strengthened against other currencies in recent months as the U.S. Federal Reserve embarked on a more aggressive rate-hike cycle to combat rising inflation. The greenback hit parity versus the Swiss franc and the euro earlier in 2022.
Despite its overall third-quarter profit dropping more than 20% year over year, UBS shares were up more than 4% at around 11:30 a.m. in Zurich.
Market headwinds
The weakness in financial markets dented UBS' earnings in the quarter, as all of its four main business divisions reported lower pretax operating profits year over year. In the global wealth management division, a slump in recurring net fee income and transaction-based income was partly offset by NII, which increased to $1.37 billion from the year-ago $1.11 billion.
"Market headwinds continue to challenge our asset-based and transaction revenue in all regions," Youngwood said.
The decline was more severe in the investment banking division, where pretax operating profit dropped to $447 million from the year-ago $837 million. Much of the decline was in the global banking business — comprised of advisory and capital markets — amid a slump in industry activity.
The environment for the global banking business is unlikely to recover through the rest of 2022 and in early 2023, according to Hamers. He said investors seeking capital or wanting to sell their businesses would have to accept lower valuations.
"I don't think that business will perform well. The markets are just not there. And in the next year, I think it will take quite some time for the confidence to come back in the market," Hamers said.
'A flight to advice and guidance'
The group booked $17.1 billion of net new fee-generating assets in the third quarter, of which $6.6 billion was derived from Asia-Pacific. This was driven by a change in behavior by clients in that region, according to Hamers.
Clients are seeking more guidance and doing more mandate business while moving away from transactional business, the CEO said.
"It's not necessarily a flight to safety. It is a flight to advice and guidance in a period in which it's more about trends ... than the occasional opportunity," Hamers said.
Despite the positive flows in the quarter, the group's fee-generating assets declined to $1.18 trillion at the end of September from $1.24 trillion at the end of June.
