UBS, Credit Suisse Boost Earnings After Strategic Shift

By Brian Blackstone Features Dow Jones Newswires

Swiss banking giants UBS Group AG and Credit Suisse Group AG posted better-than-expected profit last quarter, suggesting their bets that managing money for well-heeled clients is the right path for steady returns have paid off despite an uncertain outlook.

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However, investors took a mixed view of the results. Credit Suisse share price increased early Friday while UBS's slid amid concerns over margins in its wealth management division despite the overall profit rise.

The results Friday have broader implications for Switzerland's banking sector which makes up a significant chunk of the country's economy and jobs. Beset for years by negative interest rates, hefty legal settlements and bumpy strategy changes, the sector appears to have turned a corner, although a vigorous recovery isn't at hand yet.

UBS said its net profit rose 14% during the second quarter to 1.17 billion Swiss francs ($1.21 billion), as its wealth management unit saw 7.5 billion francs in net new money. Credit Suisse posted net income of 303 million francs, above market forecasts and compared with a year-earlier profit of 170 million francs.

Credit Suisse's delivered a "strong set of results against weak expectations," said analysts at Morgan Stanley, adding that the outlook for the bank's risk-weighted assets "needs clarification."

UBS meanwhile, "delivered a relatively soft/mixed set" of results last quarter, said analysts at Baader Helvea Equity Research. Although many of the numbers were in line with expectations and wealth management saw net asset inflows, "the market will once again raise concerns" about gross margins in wealth management, they wrote.

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UBS shares were down 3.7% in early trading. Credit Suisse shares were up nearly 2%.

UBS and Credit Suisse have in recent years turned their focus to wealth management and scaled back investment banking, which can be quite profitable but is also volatile and costly to operate. UBS started this process years ahead of Credit Suisse, which is midway through a three-year strategic program launched by Chief Executive Tidjane Thiam.

"Our focus on the global wealth management opportunity is paying off, with growing net new assets and record global assets under management," Mr. Thiam said.

The prospects for UBS, Credit Suisse and other Swiss banks are key to the Alpine country's economy.

Although the number of banks has pared back sharply in the past 20 years, the financial sector still generates--directly and indirectly--about 13% of Swiss gross domestic product, according to a study by BAKBASEL.

Write to Brian Blackstone at brian.blackstone@wsj.com

(END) Dow Jones Newswires

July 28, 2017 04:18 ET (08:18 GMT)