Published April 29, 2013
ZURICH/FRANKFURT – Switzerland's UBS and Britain's Lloyds will on Tuesday show the impact of cost-cutting and tougher regulations on operations and capital strength, hours after rival Deutsche Bank announced a shock cashcall.
Deutsche has been under pressure for to bolster its balance sheet and said its core capital ratio will rise to 9.5 percent, from 8.8 percent at the end of March.
Tougher regulations are putting renewed scrutiny on the health of all banks. Russia's VTB raised $3.3 billion in a share sale on Monday, attracting a new class of sovereign investor in the process.
UBS and Lloyds have higher capital ratios than most, but Swiss and British regulators have taken a harder line than elsewhere.
UBS is expected to post a sharp drop in first-quarter profit after it cut 10,000 jobs in a partial retreat from investment banking, notably in fixed income.
The Swiss bank is trying change a scandal-tainted image and focus on private banking clients, or those with more than $1 million in assets to bank. It was fined $1.5 billion for the manipulation of Libor and other benchmark interest rates in December, the biggest fine yet handed out.
Investors are particularly keen to see how the bank is exiting fixed-income positions, and want to gauge the private bank's health.
"We believe the quarter will prove strong for the wealth and asset management businesses and expect the company's capitalization to be in line with guidance," Bank Vontobel analyst Teresa Nielsen said.
Results from UBS's arch rival Credit Suisse last week favored investment banking over private banking, and Credit Suisse stock has easily outperformed its rival this year.
UBS, the second-largest private bank after Bank of America , is expected to report a first quarter net profit of 601 million Swiss francs ($638 million), down from 1.04 billion francs a year earlier, according to analysts polled by Reuters.
Deutsche Bank beat analysts' forecasts with a first-quarter pretax profit of 2.4 billion euros, as aggressive cost cuts outpaced a slight drop in revenues at the investment bank.
Lloyds, 39-percent owned by the state, last week saw a deal to sell 630 branches fall through so the bank plans to float the network if a new buyer does not emerge. It is incurring hefty charges to separate it and also took a 250 million pound hit on Monday to sell its Spanish retail banking business.
The moves are increasing Lloyds's focus on its core domestic business, and analysts said it needs a recovery in the UK economy to underpin a revival in its fortunes and make the sale of the government's shares a more likely prospect. ($1 = 0.9417 Swiss francs) ($1 = 0.7634 euros)
(Additional reporting by Steve Slater in London; Editing by Louise Heavens)