UBS announced a net profit of $1.4 billion for the second quarter of 2019. This compared to a net profit of 1.28 billion Swiss francs ($1.29 billion) in the second quarter of 2018.
The Swiss-lender announced that this is the highest second-quarter net profit since 2010. The profit boost comes in despite declines in both its investment bank and wealth management divisions.
Here are some key highlights for the quarter:
- Operating income hit $7.5 billion versus $7.6 billion a year ago
- Return on tangible equity stood at 11.9% versus 12% a year ago
- Common equity tier 1 capital ratio of 13.3% versus 13.4% a year ago
“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 told CNBC’s Joumanna Bercetche.
UBS shares hovered around the flatline shortly after the market open.
Global Wealth Management down
UBS, however, saw a decline in its global wealth management business compared to a year ago. The bank reported an operating profit of $886 million compared to over $1 billion in the second quarter of 2018.
Profits in its investment bank division also fell from a year ago. It registered an operating profit of $440 million in the second quarter for this year compared to $571 million a year ago.
Speaking to CNBC, Ermotti explained that “the u-turn in the interest rate environment in the U.S. has created pressure.”
Market expectations point to an interest rate cut by the Federal Reserve later this month. The central bank had embarked on a normalization path in 2015, after the global and sovereign debt crises. However, recent data has shown worsening economic conditions in the U.S.
In Europe, the outlook is similar for monetary policy. The European Central Bank (ECB) said in May that if incoming economic data does not show an improvement, then the central bank will be prepared to announce more stimulus.
Ermotti told CNBC that he is not sure whether further easing will propel the economy. “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.
Ermotti’s comments come in after the Swiss-lender warned in its latest results that a return to monetary stimulus from various central banks could dent profits going forward. “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, the Swiss bank expects that a diversified business, stronger investor sentiment and higher market volatility will help offsetting impacts from changes to monetary policy.
In the previous quarter, UBS had announced that cutting an extra $300 million from its 2019 costs after anticipating the fall in revenues.
“We constantly look at ways from a structural and tactical point of view, and the 300 million were pretty much tactical. We always think constantly on how to optimize our cost base but at the same time we are investing in the future,” Ermotti said Tuesday.
Hong Kong accountants join protests, but they’re ‘civilized and calm’
Accountants in Hong Kong took to the streets on Friday to call for the government to accept five demands of the people, including the complete withdrawal of a now-suspended extradition bill.
“It’s time for us to stage a really civilized and calm march in the central business district to show that we’re still not happy with how the whole issue has been handled, and (the) government has to respond positively to the demands of the people,” Hong Kong legislator, Kenneth Leung, told CNBC on Friday, ahead of the march.
The march was set to take place from Chater Garden, in the central district of Hong Kong, to the central government office.
Hong Kong was a British colony until 1997, when it became a special administrative region of China under the “one country, two systems” framework which allows the territory a certain degree of legal and economic autonomy.
Secondary school students attend a rally at Edinburgh Place in Hong Kong on August 22, 2019.
Anthony Wallace | AFP | Getty Images
Accountants are particularly concerned about the extradition bill because they often have to cross over to mainland China for work, said Leung. The proposed extradition bill, which would have allowed fugitives to be handed over to authorities in mainland China, was suspended by the city’s Beijing-backed Chief Executive Carrie Lam last month.
Lam has repeatedly said the extradition bill is “dead” but continues to refer to it as “suspended” instead of “withdrawn.”
Other protesters have also called for the resignation of Lam, who has been blamed by the demonstrators for mishandling the situation.
Last week, state-owned tabloid Global Times said there have been calls for Hong Kong’s top accounting firms to fire employees who were “pro-riot.”
However, Leung said accountants were not at risk of losing their jobs. That’s because these protests are “not straddling any red line” and it’s “not threatening national sovereignty,” he said. Rather, they are a freedom of expression protected by Hong Kong’s laws, he added.
These accounting firms generate between 10% and 15% of their revenue from doing business in mainland China, so tensions between Hong Kong and China could pose a threat to their earnings, Leung said.
“Hong Kong and mainland China business is really their bread and butter, so they should be concerned. Of course, they do not want to be seen … doing something against the so-called red line, which is national sovereignty,” Leung said.
Hong Kong protesters released their five demands in July. The demands include the following:
- fully withdraw from a proposed bill that would allow Hong Kong people to be extradited to mainland China
- retract any characterization of the movement as a “riot”
- drop all charges against anti-extradition protesters
- set up an independent committee to investigate the use of force by Hong Kong police
- universal suffrage in elections for the city’s chief executive officer and legislature by 2020.
— CNBC’s Grace Shao contributed to this report.
Dow drops after Trump orders US manufacturers to move from China
Stocks plunged on Friday after President Donald Trump ordered in a series tweets that U.S. manufacturers find alternatives to their operations in China. Apple led the way lower.
Trump tweeted on Friday: “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing..your companies HOME and making your products in the USA.” However, it is not clear how much authority the president has on this front.
“The threats always been out there but there’s been no need to provoke that,” said Art Hogan, chief market strategist at National Securities. “It’s almost like the administration was expecting the Fed to announce a rate cut at the Jackson hole meeting.”
Apple shares dropped 4.6%. The VanEck Vectors Semiconductor ETF (SMH) slid 3.8% as Nvidia and Broadcom both fell around 5%. Caterpillar shares, meanwhile, pulled back 3.2%.
Trump’s tweets come after China unveiled new tariffs on Chinese goods. China will implement new tariffs on another $75 billion worth of U.S. goods, including autos. The tariffs will range between 5% and 10% and will be implemented in two batches on Sept. 1 and Dec. 15.
Earlier in the day, stocks teetered around the flatline after Federal Reserve Chairman Jerome Powell delivered a speech from an annual central banking symposium in Jackson Hole, Wyoming.
In it he said the Fed will do what it can to sustain the current economic expansion. “Our challenge now is to do what monetary policy can do to sustain the expansion so that the benefits of the strong jobs market extend to more of those still left behind, and so that inflation is centered firmly around 2 percent.”
He also noted there is no “rulebook” for the current U.S.-China trade war, adding that “fitting trade policy uncertainty into this framework is a new challenge.”
But traders may have wanted a clearer suggestion that the Fed would cut rates in September. The market was looking for a more aggressive walk-back of his now infamous “midcycle adjustment” comment that signaled the July rate cut was just an adjustment and not the start of a trend.
Chinese employees working on micro and special motors for mobile phones at a factory in Huaibei, China.
STR | AFP | Getty Images
Powell said in Friday’s speech that “after a decade of progress toward maximum employment and price stability, the economy is close to both goals. ” Those comments likely didn’t assuage traders hoping for an aggressive easing cycle from the Fed.
“He’s walking a tightrope, he’s balancing so many things that no other fed chairman has had to do in terms of a very aggressive president, markets that are demanding faster and more rate cuts, the geopolitical challenges of trade and now he has a very divided group of fed presidents with very diverse views of where they should go next,” said Michael Arone, chief investment strategist at State Street Global Advisors. “His comments reflect that he’s not going to say ‘we’r cutting significantly over ht next couple of months’ … he’s really playing it down the middle.”
The yield curve was inverted on Friday. The spread between the 10-year Treasury yield and the 2-year rate inverted on Thursday after Fed members indicated a September rate cut was not a certainty, raising fears that the central bank would not be quick enough to save the economy from a recession. The yield curve has been a reliable recession indicator in the past.
However, St. Louis Fed President James Bullard told CNBC’s Steve Liesman on Friday that the central bank should keep cutting rates, noting that an inverted yield curve is “not a good place to be. “
—CNBC’s Yun Li and Patti Domm contributed to this report.
Companies that import from China drop after Trump orders them to move
Customers try iPhones at the Apple store in Hong Kong, China.
Stringer | Anadolu Agency | Getty Images
Multinationals that rely on the supply chain from China are tumbling after President Donald Trump ordered them to find alternatives to their Chinese operations.
These trade bellwethers are member stocks in CNBC’s proprietary China Trade Index, which tracks companies with biggest China revenue exposure and most imports from China.
Trump tweeted on Friday: “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing..your companies HOME and making your products in the USA.”
The order came after China Friday vowed to retaliate with tariffs on $75 billion more of U.S. goods and resume duties on American autos and parts. The newly announced import taxes represented a direct response to Trump’s plan to impose duties on $300 billion worth of China’s goods by mid-December.
It’s not clear whether Trump himself has the power to enforce any such decree. It would seem the president does not have the power without Congress to order companies to make such a move. But the shares dropped anyway on concern the administration would make sourcing in China more difficult for them using any means at its disposal.
Officials are not explaining what legal or moral authority the President has to make that order, CNBC’s reported.
These multinationals have been trying to cope with the tit-for-tat tariffs happening between the U.S. and China for more than a year. Some have already announced plans or are considering shifting manufacturing from China due to the intensifying trade war.
Trump’s latest round of the China tariffs dominantly affect consumer goods companies as the duties cover clothing and electronics. Those affected companies with exposure to Chinese imports include Ralph Lauren, Whirlpool, HP and Under Armour, according to a J.P. Morgan analysis last week.
Ralph Lauren and Whirlpool both dropped more than 3%.
— CNBC’s Michael Bloom contributed reporting.
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