UBS hedging volume up by 72% year on year

UBS delivered strong second-quarter results with reported profit before tax (PBT) up 12% year on year to CHF1.6 billion (US$1.6 billion) and adjusted PBT up 8% to CHF18bn. Net profit attributable to shareholders was CHF1.2 billion, up 9% from the second quarter of 2017.

Liabilities transferred into and out of Level 3, which includes assets whose fair value cannot be determined by using observable inputs or measures - such as market prices or models - amounted to CHF1.7 billion and CHF4.1 billion, respectively. Transfers into Level 3 were primarily comprised of structured medium-term notes and equity-linked issued debt instruments due to decreased observability of the embedded derivative inputs. Transfers out of Level 3 were primarily comprised of interest rate-linked and equity-linked issued debt instruments resulting from changes in the observability of the respective own credit adjustment (OCA) curve and equity volatility inputs used to determine the fair value of these instruments.

UBS has been the second most active bond provider globally including non-retail products year to date with US$7.4 billion sold across 7,459 products, compared to US$4.3 billion across 2,701 products sold during the same period of 2017, which represents a 72% increase in volumes year on year, according to SRP data. The Swiss bank has also been the third most active distributor of structured products including non-retail products, globally, with US$7.5 billion sold year to date across 3,144 products, compared to US$7.1billion sold during the first half of 2017.

SRP data also shows that UBS main market for structured products is the US where the Swiss bank has marketed over 2,400 so far this year of which the majority were knockout and reverse convertibles structures. More than 1,890 of the products launched during the first half of 2018 in the US market are still live. The Swiss bank has also marketed 339 products in its home market most of which are reverse convertibles and worst-of strategies, and 242 products in Taiwan of which 191 were products with a range-accrual payoff profile.

In Switzerland, UBS remains a top three bond provider having hedged over 440 products with an estimated CHF878m sold, year to date. The bank is also the third most active distributor of structured products after Vontobel and Leonteq with US$880m sold across 416 products.

Global Wealth Management's profit before tax (PBT) rose 18% year-on-year to CHF1.03 billion, driven by double-digit PBT growth in the Americas and the ultra-high net worth segment, and ten-year records in recurring net fee, net interest income, lending and mandate penetration. Personal & Corporate Banking PBT was CHF368m, as growth in recurring net fee and transaction-based income offset the ongoing pressure from the negative interest rate environment; net new business volume growth remained strong.

Asset Management reported PBT of CHF101m, as the positive impact from higher invested assets mostly offset the effect of a prior-period business sale and pressure on margins, and invested assets rose to CHF810bn, the highest in a decade. The Investment Bank delivered PBT of CHF569m, up 26% year on year, and an adjusted return on attributed equity of 23%, on strong revenue growth in equities and foreign exchange, rates and credit (FRC).

Equities adjusted revenues increased by 17%, with growth in all regions and product lines, according to the report. Corporate Client Solutions revenues were CHF624m, down 15% compared to the second quarter of 2017, mainly reflecting lower equity capital markets revenues. The bank's costs increased in the first half of 2018, partly reflecting higher investments in technology.

During the first half of 2018, UBS' wealth management division has also promoted barrier reverse convertibles (BRCs) and buying put options as a method to buy downside protection in times of higher volatility, as well as using a systematic hedging approach in order to lower the volatility of a portfolio, and improve the cost and effectiveness of hedging. The asset management division also launched UBS Partner, a white-label technology solution which forms part of the UBS Platform Solutions offering aimed at reshaping the advisory process and client service offered by banks.

In addition, the investment banking division rolled out a partnership with Solactive to develop a new suite of financial benchmarks targeting the World Bank and other high-grade development bank debt.

'We'll keep our focus on growth and efficiency, and continue to build on the strengths of our global franchise," said Sergio P. Ermotti (pictured), Group chief executive officer.

Click in the link to read the UBS full report.

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