UBS, Credit Suisse Boost Earnings After Strategic Shift -- Update

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.

"For me what is the most unique in our story is we have grown more than the competition, cut costs more than most of competition, raised capital, reduced risk and reduced legacy assets," said Credit Suisse chief executive Tidjane Thiam, in an interview.

Credit Suisse's share price increased late morning 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. Net new assets increased by nearly 23 billion francs in the first half of the year, pushing assets under management to a record high.

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.

UBS shares were down 3.7% late morning in Europe. Credit Suisse shares were up 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 Mr. Thiam.

The process at Credit Suisse has been rocky and exposed internal divisions within the bank early on. The low point came one year into Mr. Thiam's tenure when Credit Suisse shares dipped below 10 francs per share. The stock has recovered since, but at 15 francs remains well below the level around 25 francs when Mr. Thiam took the helm.

He said Credit Suisse's share performance is typical of banks doing major restructuring, and that Credit Suisse had the added headwind of starting the process during a rocky period in financial markets. The capital hike also diluted share value.

The bank lost 2.4 billion francs last year, mostly due to a legal settlement with the U.S. over crisis-era mortgage backed securities. Still, its financial position was strong enough in the spring for the bank to shelve plans to sell a chunk of its profitable Swiss unit and raise capital by listing additional shares instead. The Swiss unit posted a strong profit last quarter.

"I never doubted the outcome, it was just unpleasant," said Mr. Thiam, referring to the early phases of the restructuring.

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

(END) Dow Jones Newswires

July 28, 2017 05:42 ET (09:42 GMT)