On Jun 12, 2014, we issued an updated research report on UBS AG (UBS). This foreign bank recently reported impressive first-quarter 2014 results. Results were aided by prudent expense management. Though the company shows stability in its fundamentals, we remain cautious due to the current economic uncertainty across the industry.
The company reported first-quarter 2014 net income attributable to shareholders of CHF1.05 billion ($1.18 billion), which compared favorably with the prior-year quarter earnings of CHF 988 million ($1.1 billion).
UBS AG’s disciplined expense management is a driving factor behind the company’s long-term success. The company aims to increase cost efficiency and has strengthened cost management and transparency. Compared with 2013, the bank is targeting a CHF 1.4 billion reduction in Corporate Center operating expenses by year-end 2015. After that, the company expects further cost reductions of CHF 0.7 billion in Non-Core and Legacy Portfolio as it fully exits the portfolio.
During first-quarter 2014, the company enhanced its capital position, exceeding its own year-end capital targets. Since the company announced its strategy in the second half of 2011, it has more than doubled the fully applied Basel III common equity tier 1 (CET1) ratio from around 6% to 13.2%, already above the regulatory minimum of 10% by 2019.
Despite strong fundamentals, we believe there are certain issues that may create pressure on the company’s financials in the near term. These include sluggish progress on material improvements regarding unresolved issues in Europe, U.S. fiscal and monetary issues and the ongoing global concerns along with litigation issues.
For UBS AG, over the last 60 days, the Zacks Consensus Estimate for 2014 increased 6.8% to $1.42 per share. For 2015, the Zacks Consensus Estimate rose 6.3% to $1.86 per share, over the same time frame. UBS AG currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked foreign banks include BBVA Banco Franc (BFR) and The Royal Bank of Scotland Group plc (RBS) with a Zacks Rank #1 (Strong Buy), while Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) carries a Zacks Rank #2 (Buy).
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