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Highest Q2 Profits By UBS In Nine Years, But Warns Against ‘Rate Cuts’

Highest Q2 Profits By UBS In Nine Years, But Warns Against ‘Rate Cuts’
The Swiss-lender UBS reported the highest net profit in the second quarter since 2010 at $1.4 billion. That was much higher that the net profit of 1.28 billion Swiss francs ($1.29 billion) that the company reported in the same period a year ago. This increase in net profits was clocked by the bank despite a drop in revenues and profits its investment bank and wealth management divisions – the two most important businesses of the lender.
The bank however reported a slightly lower operating income of $7.5 billion in the second quarter compared to $7.6 billion in the same period a year ago. There was also a drop of return on tangible equity at 11.9 per cent compared to 12 per cent the second quarter of 2018.
“We saw a normalization of the environment coming out of a good March into the rest of the quarter. I’d say the highlights were clearly: diversification paid off again,” Sergio Ermotti, chief executive officer of UBS said in a television interview.]
Quarter on quarter, UBS however saw a decline in performance of its wealth management business in the second quarter as well as a lower operating profit of $886 million in the second same time period compared to more than $1 billion in same period of 2018.
The investment banking business of UBS also saw a drop in t second quarter at $440 million compared to $571 million in te same period a year ago.
 “The u-turn in the interest rate environment in the U.S. has created pressure,” Ermotti explained in the TV interview.
Analysts and market sentiments clearly favor a drop in interest rate later this month by the US Federal Reserve. Since 2015, the Fed has initiated a policy of normalization following the sovereign debt crises and the global financial crisis. But according to recent data, the economic situation in the US is not very good.
A similar outlook for the monetary policy of Europe is also painted. Preparations to make announcement and implementation for more stimulus would be made by the European Central Bank (ECB) if the incoming economic data does not show an improvement, said the central banker of the European Union.
Whether the economies of Europe and the US would be stimulated by further easing is not clear, said Ermotti. “I’m not sure going deeper into negative territory or using the QE (quantitative easing) is the way to get out of the problems…We need more structural answers,” he said.

Ermotti warned “there are severe broader considerations than just the banking industry” from low rates.
There can be a hit to profits going forward if there is a return by the various central banks to a regime monetary stimulus, warned the Swiss-lender in its latest results. “A sharp drop in interest rates and expected rate cuts will continue to adversely affect net interest income compared with last year,” UBS said.
However any change of monetary policy can be offset by UBS because of its diversified business, higher market volatility and stronger investor sentiment, said the Swiss bank.

Christopher J. Mitchell

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