Q2 bank results – another positive quarter underpins a strong recovery

Banks reported another strong quarter, with most issuers beating consensus estimates. Again, a key driver of the results was very low and even negative loan loss provisions – boosting profitability. Underlying trends were also encouraging with the pressure from low rates slightly abating and signs of net interest margins (NIM) among banks starting to bottom out. On the capital front, bank capital metrics remain very robust, although these are expected to slightly decline given more focus on capital distribution (dividend restrictions have been lifted) and regulatory inflation from Basel IV and other initiatives. Overall, the banking sector continues to shine and is delivering strong earnings on a solid capital base. We see no deterioration of asset quality currently, with non-performing loans (NPLs) remaining low and stage two loans on a continued downtrend since the Covid-19 peak. Below are examples of results to illustrate our points:

UBS Q2 2021 results

UBS continues to deliver strong results, with a 19.3% return on CET1 for Q2 2021 on a 71.8% cost / income ratio. CET1 also remains above target at 14.5%. Results were ahead of both internal targets and sell-side consensus estimates.

Earnings:

Pre-tax profits up 64% year-on-year (yoy) to USD 2.6 billion on higher income (+21%) and net reserve releases offset by higher operating expenditure (+10%).

In the bank’s wealth management division, pre-tax profits were up 47% driven by a +21% growth in operating income (fee and transaction income driven). Positive jaws ratio with a cost / income ratio down 3 percentage points at 73%. Assets under management climbed +25% yoy to USD 3.2 trillion; USD 25 billion inflows in fee generating products in Q2 2021.

Swiss retail pre-tax profits up 100% yoy as operating income rose 31% due to a pick-up in transaction income, one-off real estate sales and reserve releases.

Asset management profit before tax was up 62% (+38% ex one-off item) with higher recurring fee income from higher assets under management base (+26% yoy). USD 9 billion of net new money was announced for Q2 2021.

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