FINANCIALS: UBS Call: Capital And Profitability - Spread Positive

UBS (UBS: A3 dev/A-/A) conference call was largely concerned with capital and profitability outlook. On the former, guidance is becoming clearer and tallies with our thinking around higher capital levels and better risk transparency. On the latter, we do think there’s a small consensus upgrade likely but, more importantly, the mid-term outlook appears relatively strong as the franchise recovers. As we noted earlier, spread moves implied relatively muted expectations so we take today as a credit positive datum.

• Basel IV: guidance remains for this new rulebook, largely driven by FRTB, to be an uplift of c.5% of RWAs, which is around USD25bn of RWAs. This is actually around market expectations. Lots of work is now complete around capital simplification; merging entities “out of existence”. Mgmt expects to report a UBS AG standalone CET1 13.5% next week. All of the above mean that both credit risk appears to be becoming more transparent and that capital buffers are to continue to rise.
• On business performance: NII is seen as bottoming out in the coming 6-12months, assuming forward curves are relevant, which is a little more positive than consensus is assuming, we estimate. Further, ECM and IPO activity is only slowly recovering and that’s still meaning the wealth businesses, as well as the IB, aren’t yet back to what might be viewed as “normal” rates of operation.