Yahoo Finance Strategic Buyouts Support UBS Group AG (UBS), High Costs Ail
UBS Group AG UBS is focused on efficiency programs and opportunistic expansion strategies to support its financials. A strong capital position is an added positive. However, the expected decline in net interest income (NII), exposure to foreign exchange risks and rising expenses are headwinds.
The company’s continued focus on efficiency programs is expected to free up resources to make growth investments and enable it to serve clients with greater dexterity, improving quality and speed to market.
UBS Group AG has been displaying a strong capital position over the years. As of the first-quarter 2023 end, the common equity tier (CET) 1 capital ratio was 13.9% and the CET1 leverage ratio was 4.40%. Post the Credit Suisse acquisition, the company expects its CET 1 capital ratio to remain above the regulatory minimum capital requirements.
UBS has been fortifying its footprint in various areas over the years through its partnerships and acquisitions. It announced an all-share deal to acquire Credit Suisse in March 2023. Also, in 2019, it entered into a joint venture with Sumitomo Mitsui Trust Holdings, a trust banking group, and gained access to the latter’s affluent client base.
Further, UBS is making efforts to become more digital and data-driven to provide clients with digital-first services. In fact, it established a leveling-up strategy based on five key pillars through Agile@UBS, quarterly business reviews and digital roadmaps, modern technology, automation and engineering excellence. It has also introduced an Artificial Intelligence, Data and Analytics center of expertise. These efforts are likely to provide it with a competitive edge over its peers.
However, the company’s NII growth (in the Global Wealth Management and Personal & Corporate Banking segments) will likely be under pressure in the near term due to tepid growth in the European economy. The company expects second-quarter NII to sequentially decline in the mid-single-digit range primarily due to reductions from the Global Wealth Management business.
Moreover, UBS is exposed to foreign exchange risk. Since a large part of the company’s operating income is denominated in non-Swiss franc currencies, earnings will be impacted due to the appreciation of the Swiss franc against other currencies.
UBS suspended share repurchases due to the anticipated acquisition of Credit Suisse. Also, the company’s fluctuating quarterly performance and an unfavorable debt/equity ratio deem capital deployments unsustainable.
Further, the company’s expenses have been rising over the years, exposing it to various operational risks. Though the company is on track to deliver $1 billion gross cost savings per annum by 2023, its flaring cost is likely to impede bottom-line growth.
As a Swiss systemically relevant bank, UBS Group AG is subject to heightened regulatory supervision. Further, any fundamental changes in the laws and regulations affecting financial institutions are expected to increase costs and could also generate capital inefficiencies and impact profitability.
Shares of this Zacks Rank #3 (Hold) company have risen 11% compared with its industry’s 6.7% increase over the past six months.
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Finance Stocks Worth Considering
A couple of better-ranked stocks from the finance sector are Standard Chartered PLC SCBFF and First Citizens BancShares FCNCA, both currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for SCBFF’s 2023 earnings has been revised 12.3% upward over the past 30 days. The stock has gained 14.5% over the past six months.
The consensus estimate for FCNCA’s fiscal 2023 earnings has been revised 67.2% upward over the past 30 days. The company’s share price has increased 65.6% over the past six months.
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