Following strong results from UBS, Zurich-based private bank Julius Baer reported record profits. But the outlook for the future is far less uplifting for the industry.

In just two days Swiss blue-chip banks posted superlative results. UBS booked its largest pre-tax profit since 2006, with private bank Julius Baer reporting its best result ever the following day. «UBS is in a better position than ever,» bank CEO Ralph Hamers said Tuesday. 

Still, UBS omitted its traditional outlook for the coming months and there were no comments from Julius Baer's CEO on the business outlook in the bank's press release.

Weaker Activities

It was interesting to hear what the top management of UBS had to say about the results, indicating that there is a temporary threat of weakening business activities.

In the face of uncertainty sweeping the markets, political risks and higher interest rates on the horizon, investors are saying goodbye to risky investments. For private banks, however, this may not be a bad thing. This was evident in March 2020, following the Corona crash, which proved lucrative for the houses which benefitted from enormous trading volumes.

The risk now is wealthy clients retreating to the sidelines and using the institutions mainly to park cash.

End of the Line?

But what happens if the flood of wealth stops any time soon? Julius Baer was able to improve its cost-income ratio (CIR) from 66.4 percent in 2020 to 63.8; UBS wealth management saw only a 0.5 percentage point improvement in CIR. In other words, costs have not been reduced rapidly enough.

When announcing new financial targets, UBS left the target for its global wealth management pre-tax profit at 10 to 15 percent. This could be interpreted as the end of the road for the superdivision's earnings power.

Rising IT Costs

The institutions also have expensive obligations. For example,  UBS has set itself the goal of continuing to invest around 10 percent of its earnings in technology and increasing its strategic IT investments. 

Julius Baer noted that IT spending increased in recent years. Among its strategic priorities for this year, the private bank said it will upgrade its technology platforms and expand the reach of digital tools.