UBS Group AG posted better-than-expected third-quarter profit and set aside $1.5 billion for share buybacks next year as Chief Executive Officer Sergio Ermotti prepares to hand over to Ralph Hamers.
The Zurich-based wealth manager — the world’s largest — followed US banks in reporting earnings that benefited from increased market volatility and higher transaction-based income. It also unexpectedly saw inflows of new money at the private banking business and said fourth-quarter provisions are set to remain “markedly lower” than in the first half.
Ermotti, one of longest-serving bank CEOs in Europe, is departing as Covid-19 pandemic forces lenders to step up cost cuts and reignites consolidation talk. While the trading rally has helped banks prepare for the prospect of increased bad loans, record new infections in Europe and potential further clampdowns are now clouding the outlook for his successor.
While warning that the recent increase in cases could impact the global recovery, UBS said it expects approval to start buying back shares next year after regulators pushed banks to conserve capital because of the crisis. UBS also accrued about $1 billion towards its expected 2021 dividend and said it plans to pay the second tranche of its 2019 payment on November 27.
Going forward, the bank plans to change the balance between cash dividends and share repurchases compared with previous years, potentially reducing a dividend that’s higher than many Wall Street peers in favour of the greater flexibility of buybacks.
Under Ermotti, Switzerland’s largest bank pivoted away from volatile investment banking and focused on the relatively stable business of wealth management. That, along with a conservative approach to lending to its richest clients, has shielded its loan book to some extent from the impact of the pandemic. UBS added $89 million to its loan loss provisions during the quarter, less than the $225 million that analysts polled by Bloomberg had estimated.
Net income about doubled from a year earlier. Third quarter results were boosted by one-off gains related to the sale of a fund distribution business and intellectual property rights at the investment bank.
The issue of dividends and share buybacks has become a heated one in Europe. A few of the stronger banks in the region have started to lobby for a resumption of payouts again to help revive flagging share prices, though regulators have urged the industry to conserve capital.
Within the European Central Bank — which regulates rivals such as Societe Generale SA and Deutsche Bank AG — there’s still uncertainty as to when it will allow banks to resume payments.
“The fact that we are highlighting what we would have done so far this year, by creating this $1.5 billion reserve is a testament of our commitment,” on returns, Ermotti said in a Bloomberg Television interview. “In respect of timing, I think it’s not realistic at this stage considering the overall regulatory environment and restrictions worldwide to see something until the early part of 2021.”