Zurich/Frankfurt The nervousness was great before the start of the quarterly season of the major European banks. How would the war in Ukraine, the growing risk of inflation and the imminent turnaround in monetary policy affect the business of the financial institutions after the figures from the US competition had turned out to be pretty mixed? The first results are encouraging.
Thanks to a booming trading business, the major Swiss bank UBS managed the best start to the year in 15 years. The bottom line is that the largest Swiss bank earned 2.1 billion dollars from January to March, 17 percent more than in the same period last year.
The jump in profits compared to the first quarter of 2021 is so high mainly because the collapse of hedge fund customer Archegos weighed on earnings at the time. Nonetheless, UBS beat analysts’ expectations, which had expected a $1.8 billion surplus.
The return on equity reached 19 percent and thus exceeded the target range raised to 15 to 18 percent in February. The market turbulence caused by the Ukraine war led to record high earnings in the trading division. In the difficult environment, customers trusted the advice of UBS, said CEO Ralph Hamers. “And as volatile markets increased trading volumes, we managed high transaction volumes, managed risk and provided access to liquidity.”
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However, the core business of the Swiss with the rich and super-rich has recently weakened somewhat: the pre-tax profit of wealth management (Global Wealth Management) fell by seven percent. Especially in the two most important markets, North America and Asia, UBS suffered losses. Investors were mostly positive about the numbers. By the afternoon, UBS shares had gained 2.3 percent in value.
Warning against too much optimism
The first quarter also went better than expected at the major Spanish bank Santander. Thanks to good business in Europe and South America, net profit climbed by 58 percent to 2.54 billion euros. In the same quarter of the previous year, however, restructuring costs of 530 million euros had also weighed on profits.
The result exceeded the expectations of the analysts, who had expected an average net profit of 2.26 billion euros. Operating earnings increased by 19 percent. Despite the war in Ukraine and the growing risk of inflation, Ana Botin, head of the board of directors, reaffirmed the goals for the current year. On the stock exchange, the Santander share gave back initial gains and was down more than five percent in the afternoon.
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UBS and Santander, together with the British HSBC, are among the first major European banks to present their figures for the start of the year. In the first quarter, the major US banks suffered from the slowdown in business with company takeovers and IPOs, which had recently been hot, and in some cases earned significantly less.
At industry leader JP Morgan, for example, profits fell by a good 40 percent in the first quarter. The triggers included the economic turbulence following the Russian invasion of Ukraine.
Experts warn against drawing conclusions for the year as a whole from the better-than-expected figures from UBS and Santander for the first three months. “Large parts of the first quarter were not yet overshadowed by the war in Ukraine; the harsh reality will only become apparent in the second and third quarters,” says a top European banker.
HSBC with problems
The start of the year was worse for HSBC than for the competition. The London-based major bank, which earns its money primarily in Asia, suffered a slump in profits in the first quarter due to provisions for loan defaults. Pre-tax profit fell 27 percent to $4.2 billion, according to Europe’s largest bank. On average, the analysts had expected an even sharper slump to $3.72 billion.
The bank set aside $600 million for expected credit losses in the first quarter, after releasing $400 million in reserves in the same period last year because of the better economic outlook. But inflation and the war in Ukraine are currently weighing on economic expectations, the bank said. Therefore, share buyback programs are unlikely this year.
Next, Deutsche Bank and Credit Suisse will report their quarterly reports on Wednesday. For Deutsche Bank, the analysts are forecasting quarterly profits before taxes of 1.6 billion euros and net profits of 1.1 billion euros. This means that both key figures are roughly at the level of the previous year.
In terms of income, the experts assume a slight decline from 7.2 to around seven billion euros. The investment bank, for which the analyzes predict a pre-tax profit of 1.3 billion euros, should again provide the lion’s share of the profit. Similar to UBS, the Frankfurt-based company is likely to have benefited from the lively trading business.
Credit Suisse will not emerge from the crisis
Credit Suisse’s top management has already prepared shareholders for another quarter of the crisis. The crisis-ridden major Swiss bank last week warned of another loss for the first quarter of 2022. Expensive legal cases in particular prompted the money house to issue the surprising profit warning. But the effects of the war in Ukraine, the loss in value of an investment and skid marks in day-to-day business are also affecting the bank. In total, these burdens add up to around 1.25 billion Swiss francs.
According to media reports, Credit Suisse is also planning another board restructuring. Accordingly, chief financial officer David Mathers and chief lawyer Romeo Cerutti are about to be dismissed. Edwin Low could become the new head of Asia. The bank acknowledged considerations related to senior positions, but did not comment on the details.
The institute has been undergoing restructuring for years, and a series of failures and affairs have made the second-largest Swiss money house one of the biggest restructuring cases among the major European banks.
More: Top banker Ana Botín: “The financial system will weather this storm well”