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Is UBS AG (UBS) Likely to Disappoint Earnings this Season?

UBS AG (UBS) is scheduled to report its third-quarter 2014 results on Tuesday, Oct 28.

In the last quarter, this foreign bank delivered impressive earnings with 14.8% year-over-year increase in net income. While prudent expense management, reduced net charges for provisions for litigation, regulatory and similar matters along with own credit gain on financial liabilities were the positives, lower net interest and trading revenues were concerns.

Will UBS AG impress in the upcoming release after combating the challenges the industry witnessed during the quarter? Let's see what factors might have influenced the earnings report this time around.

Factors to Influence Q3 Results

After incurring loss in 2012, UBS AG swung to profit in 2013. The company continued to exhibit efforts in strengthening its fundamentals as it reported impressive results in the first 2 quarters of 2014. The trend is expected to continue with limiting expenses and focus on non-interest income, though margin compression and sluggish loan growth might act as major dampeners.

A prolonged low interest rate environment is not expected to reverse any time soon as central banks of most of the countries will continue to prioritize growth over inflation control. This strategy is sustainable as inflation is the concern of only a few emerging economies. Thus, banks operating in a low interest rate environment will not be able boost revenue through interest income.

Further, the Federal Reserve’s stricter capital rules for foreign banking organizations (FBOs) sizably operating in the U.S. could cripple their balance sheet. According to the new rules, the U.S. operations of foreign banks need to hold risk-based capital, liquidity and leverage similar to their U.S. peers with effect from Jul 1, 2016.

Anyway, amid several litigation issues and internal inefficiencies, this foreign bank is striving hard through restructuring initiatives that focus on building capital levels to achieve operational efficiency and reduce risk-weighted assets (RWAs). Currently, UBS AG carries a Zacks Rank #5 (Strong Sell).

Other foreign banks that are expected to release results in the coming days include Itau Unibanco Holding S.A. (ITUB), Royal Bank of Canada (RY) and HSBC Holdings plc (HSBC). HSBC will report third-quarter 2014 results on Nov 3 and Itau Unibanco on Nov 4, while Royal Bank of Canada is scheduled to report its fourth-quarter fiscal 2014 (ended Sep 30) results on Dec 3.

Read the Full Research Report on UBS
Read the Full Research Report on ITUB
Read the Full Research Report on RY
Read the Full Research Report on HSBC


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