During a down market, firms cannot hang their hats on revenue flows – so, they often turn to client flows instead. Client outflows can be a sign of impending disaster as we saw in the fourth quarter of 2008, so client inflows are often seen as the antithesis.
The strong second quarter results for UBS (NYSE: UBS) stood out against weak results from competitors Goldman Sachs (NYSE: GS) and Citigroup (NYSE: C). Investors are showing confidence in CEO Oswald Gruebel and his team, lifting the shares 10 percent as restructuring strategies have become more clear. Amid these positive results, UBS was able to avoid the hit many banks took on Europe’s sovereign debt crisis, which pushed Deutsche Bank (NYSE: DB) shares down.
As Basel III looms with new bank regulatory rules, UBS is seen as a strong performer already, with a Tier 1 capital ratio of 16.4 percent. This is a stark contrast to the firm’s seemingly weak position in early 2008 which led the firm to raise capital multiple times.
Credit Suisse (NYSE: CS), a tough competitor in the Swiss banking market also beat forecasts with a second-quarter profit of 1.6 billion. Although, tax and accounting gains had partly offset a significant quarterly decline in investment banking.
While the client outflows of UBS reached 18 billion francs in the first quarter, they amounted to only 5 billion francs in the second, a sharp decrease. On a net basis, UBS won 2.6 billion francs of client money in the asset management division, the first net inflow in over two years. The Wealth Management & Swiss bank division did post outflows of 5.5 billion Swiss francs, along with 2.6 billion of withdrawals in Wealth Management Americas.
Sharply lower loan loss provisions also helped Deutsche as it did the American banks in earnings disclosures. As global credit markets improve and loan losses falls, each of the banks seem in a strong position for growth.
