UBS Group AG UBS is scheduled to report its first-quarter 2015 results on Tuesday, May 5.
Will UBS impress in the upcoming release after combating the challenges the industry witnessed during the quarter? Let's see what factors might have influenced the earnings report this time around.
Factors to Influence Q1 Results
The Swiss National Bank's (SNB) recent moves including removal of the EUR/CHF floor have increased the value of the Swiss franc in terms with other currencies. A larger part of UBS Group’s operating income is denominated in non-Swiss franc currencies than the part of operating expenses denominated in non-Swiss franc currencies. Hence, earnings are likely to be impacted due to appreciation of the Swiss franc against other currencies as the first quarter did not witness any significant improvement in such a scenario.
Further, the company’s profitability is likely to be strained owing to the negative interest rates in the eurozone and Switzerland.
Though UBS group remains focused on expense management, it has been embroiled in several lawsuits and investigations. As a result, the company might have kept additional reserves for litigation expenses, which could dampen the bottom line to some extent.
However, on a positive note, the first quarter witnessed a rebound in volatility in global financial markets – particularly in the currency market, which is expected to drive trading revenues in the quarter. We believe UBS Group’s top line should benefit from higher foreign exchange trading income.
The company gained CHF 377 million owing to sale of a real estate property in Geneva worth CHF 535 million in Jan 2015. Such a gain will be recognized in the income statement of its Corporate Center in the first-quarter results.
Amid several litigation issues and internal inefficiencies, this foreign bank is striving hard through restructuring initiatives that focus on building capital levels to achieve operational efficiency and reduce risk-weighted assets (RWAs). Notably, the quarter is likely to exhibit further reduction in RWAs.
Currently, UBS carries a Zacks Rank #1 (Strong Buy).
Other foreign banks that are expected to release results in the coming days include Itaú Unibanco Holding S.A. ITUB, Mitsubishi UFJ Financial Group, Inc. MTU and HSBC Holdings plc HSBC. HSBC Holdings and Itau Unibanco will report results on May 5, while Mitsubishi UFJ will report on May 15.
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