UBS Group AG (UBS) rose to the highest price in Zurich trading since the Swiss government came to its rescue in October 2008 after profit almost doubled in the first quarter.
Switzerland’s biggest bank posted net income of 1.98 billion Swiss francs ($2.1 billion), above the 1.22 billion-franc average estimate of seven analysts in a survey compiled by Bloomberg, as all of the bank’s key divisions beat forecasts.
“UBS blew away expectations,” Dirk Becker, a Frankfurt-based bank analyst at Kepler Cheuvreux said in a note Tuesday. “This was a comprehensive earnings beat by anyone’s standards.”
UBS’s return on tangible equity — a measure of profitability — amounted to about 14 percent in the quarter, above its target of 10 percent for the year. The bank aims for a return of more than 15 percent from next year.
“The bank had a good quarter all around,” said Alevizos Alevizakos, an analyst at Keefe Bruyette & Woods Inc. in London. “Revenues were strong and UBS exercised good cost control.”
UBS (UBS) rose as much as 7.2 percent, the biggest gain in two years, and traded 4.8 percent higher at 19.92 francs as of 5:10 p.m. in Zurich Tuesday, valuing the bank at about 76.6 billion francs. The stock rose to the highest since Oct. 17, 2008, a day after the Swiss government announced a capital injection and other measures to shore up the bank against losses from the U.S. subprime crisis. [In the U.S. Tuesday, its shares rose about 5 percent to $21.35.]
“On the numbers they produced, Ermotti must certainly feel vindicated” in his strategy as UBS moves closer to the long-term 15 percent return on equity target, said Chris Wheeler, a London-based analyst at Atlantic Equities LLP.
UBS, which holds its annual shareholder meeting on Thursday, may still face questions about its plan from activist investor Knight Vinke Asset Management LLC. The shareholder will probably question whether the firm should spin off the investment bank, SonntagsZeitung reported May 3. UBS could also combine its securities unit with that of Credit Suisse Group AG or another bank, Eric Knight told the newspaper.
“Ermotti and his team have done an excellent job” on transforming UBS, said Kian Abouhossein, a London-based analyst at JPMorgan Chase & Co. “A merger between Credit Suisse and UBS investment banks at this point does not make sense to me for UBS shareholders.”
Pretax profit at the investment bank rose 82 percent to 774 million francs, helped by an increase in trading amid higher market volatility and strong client activity. The unit’s return on equity amounted to 42 percent in the quarter.
Revenue in equities rose 15 percent to 1.16 billion francs, while fixed-income trading was up 71 percent to 701 million francs. The unit that advises companies on deals and underwrites securities offerings saw a 4 percent increase in sales to 801 million francs.
“We stayed disciplined on risk and we delivered across all businesses and regions,” Ermotti said in the statement. “The results again demonstrate the benefits of a strategy defined early.”