By Brenna Hughes Neghaiwi
ZURICH (Reuters) - UBS reported its highest annual pre-tax profit of the post financial crisis era on Tuesday, as lending to the world's ultra-rich and bumper trading volumes during the global pandemic triggered a surge in revenue.
The results handily beat forecasts, as investment gains and lower provisions for expected credit losses helped the bank post fourth-quarter net profit of $1.708 billion, nearly double the $966 million analysts expected for the quarter.
"Our strong 2020 results clearly demonstrate the true strength of our franchise," Chief Executive Ralph Hamers said in a statement.
Hamers, the former CEO of ING, took over from long-time UBS boss Sergio Ermotti in November.
UBS, the world's largest wealth manager, derives the biggest chunk of its profits from advising and managing money for the world's rich, while also maintaining smaller global investment banking and asset management operations.
It conducts retail and corporate banking only in its home market.
That business model paid off in 2020, as its low-risk lending book -- comprised primarily of mortgages and loans to the wealthy, as well as a smaller portion of corporate and retail credits in its prosperous home market of Switzerland --suffered fewer losses than many high street peers.
UBS also benefitted from volatile and rising equity markets, which saw investments and transactions pick up.
"All of the divisions have come in ahead (of expectations) with particular strength from asset management and the investment bank," Citi analysts said in a note.
Shares of UBS rose 4.1% shortly after market open, as the bank also announced the launch of a new three-year buyback programme of up to 4 billion Swiss francs ($4.50 billion).
Strong lending and trading amongst its wealthy and ultra-wealthy clients, coupled with a surge in investment banking activity, helped Switzerland's biggest bank boost net profit by 54% to $6.6 billion for the full year, meeting or exceeding all its financial targets.
Pre-tax profit of $8.226 billion was the bank's best since 2006, and every division besides its Swiss business saw pandemic-spurred gains.
In the fourth quarter, wealth management saw profits rise 22% as growth in lending and continuously high transaction levels helped cushion the impact from falling and persistently low interest rates.
The bank brought in a net $21.1 billion in fresh client inflows from wealthy customers, helping the division grow invested assets to a record $3.0 trillion.
Investment banking, meanwhile, saw pre-tax profit jump to $529 million from a loss in the fourth quarter of 2019, thanks to double-digit revenue growth in both its trading and advisory businesses, and as it pared back costs.
Banks across the world have grappled with the uneven impact of the COVID-19 pandemic, as soaring stock markets boosted trading while national lockdowns had crippling economic consequences, leaving lenders braced for coming defaults.
Earlier this month, Wall Street lenders focused on trading and investment banking posted blockbuster results, while consumer-oriented banks including Bank of America took a hit to business.
In Switzerland, UBS' domestic business posted a surprise rise in fourth-quarter profit, as the bank cut provisions it had set aside for expected credit losses by 20 million francs.
The bank overall ended the year with $694 million in net loan loss expenses.
It said its board intended to propose a dividend of $0.37 per share to shareholders, while the bank plans to buy back some $1.1 billion of shares this quarter, as it adjusts shareholder returns to favour buybacks more strongly than in the past.
($1 = 0.8887 Swiss francs)
(Reporting by Brenna Hughes Neghaiwi; Editing by Michael Shields and Jacqueline Wong)