UBS Stock: Largest Private Bank in the World Making Big Moves
The largest private bank globally, UBS Group AG (NYSE: UBS), is getting even bigger as it targets a new group of customers, millennials. The Swiss bank is having its best year since the global financial crisis, with ultra-wealthy clients driving profits. UBS stock is trending as a result, up over 10% since the release.
Not only that, but the company is expanding its U.S. presence with its latest acquisition of Cali-based Wealthfront. The Swiss bank expects the momentum to continue with big expectations this year.
Leading the transition is CEO Ralph Hamers, elected to lead the company in February 2020. Ralph is known for turning ING Group (NYSE: ING) into a digital banking powerhouse. Will he be able to do the same with UBS Group?
Keep reading to learn how the company is achieving this growth and what to expect from UBS stock.
What Is Wealthfront and Why Is It Important for UBS Stock?
A big part of its expansion includes attracting users beyond its typical client base of ultra-high earners. This is where Wealthfront comes in, a robo-advising software that offers low-cost investing and financial advice.
The keyword here is “low-cost.” UBS is known for catering to high-earners with advanced money-saving and building techniques. But the advice often comes at a steep cost leaving out those who need it.
Wealthfront helps bridge this gap by using technology to make financial advice easier and more affordable. It uses algorithms to learn and recommend personalized financial services. So far, the digital wealth manager has over 450,000 users and $28 million AUM.
The business fits UBS’s strategy of targeting a new, younger client base. Even more, it will lay the path for attracting mass customers in the U.S.
On top of this, UBS can use its premier investment research to upgrade the software, making it more powerful.
At the same time, the company has had its fair share of controversy. In 2018, the SEC charged Wealthfront with making false statements about one of its methods. In particular, the company’s tax-harvesting strategy didn’t work as designed to prevent wash sales.
Nonetheless, the deal is huge for UBS stock and investors. The company gains a proven business model with ties to tech-savvy millennials. That said, Wealthfront will be UBS’s portal to digital growth.
“Better Shape Than Ever”
That is exactly what you want to hear from the company’s CEO you are investing in. On the company’s latest earnings release, Hamers tells investors, “UBS is in better shape than ever” with another strong showing.
The firm’s profits before taxes (PBT) reached $9.5 billion in 2021, up 16% from 2020. Yet the company is setting aside $740 million to cover costs relating to a case accusing the company of helping rich French clients avoid taxes.
Even with the extra costs, UBS is steadily growing its top and bottom line as its wealthy clients continue boosting the banks’ profits. That said, UBS has four areas of business, including:
- Global Wealth Management (GWM)
- Personal & Corporate Banking (P&C)
- Asset Management (AM) &
- Investment Banking (IB)
With favorable markets and higher interest in the stock market, the company is growing in all areas. In 2021, GWM PBT grew 19%, P&C 35%, AM 29% and IB rose 6% from 2020.
More importantly, the company is spreading the wealth to investors with plans to repurchase up to $5 billion in stock. If they purchase the maximum, it would nearly double last year’s $2.6 billion repurchase.
Furthermore, UBS stock is proposing raising its dividend to $0.50 per share, a 35% increase. With the company on the right track, UBS is expanding its goals, with GWM expecting 10-15% growth.
UBS Stock Performance
After reaching an all-time high of over $66 a share in 2007, UBS stock has yet to recover from the global financial crisis. The crisis took a toll on banking stocks globally as investors fled for safer investments.
UBS stock tanked between 2007 and 2009 before finally bottoming out at $7 a share. Since then, shares of UBS are trading between $23 and $8 per share as the industry continues feeling the effects.
Yet since the pandemic, UBS stock has rallied over 175%, with its largest 1-day increase coming after earnings. With this in mind, UBS shares are approaching critical resistance levels. The last time UBS stock crossed $20 a share was in 2018, reaching $20.8. And before that, in 2015, shares crossed $23 per share before giving it back.
If share prices can hold steadily above $20 a share, we could see a break of resistance. In that case, the next level would be around $23. And then, there is a large gap to its all-time highs.
At the same time, UBS tends to favor paying down debt rather than returning it to shareholders. As a result, returns lag its peers over the past few years.
UBS Stock Forecast: What to Expect Next
With new CEO Ralph Hammer at the helm, the company is taking a more aggressive approach to growth. In the past, UBS has generally favored managing its balance sheet over prioritizing shareholders.
But with a new share buyback program and talks of a big dividend increase, the company is starting to lure investors back.
Even more, UBS’s new digital tool, Wealthfront, will help it reach a new user base. With online banking and financial services becoming a priority, Wealthfront will be the centerpiece of this transition.
That said, UBS stock is trading at a discount despite the recent growth. With a forward P/E of 9.22, UBS stock is cheaper than JP Morgan (13.05) and Morgan Stanley (13.12).
The average price target of $23.49 suggests a 14% upside, with high estimates implying a 27% upside. With heavy volume this past month, it could mean buyers are stepping in while UBS stock continues trending higher.
Looking ahead, UBS will continue growing its digital presence while lowering costs. Wealthfront will give the firm a head start, but it will be up to them to grow its user base. If they can successfully integrate the younger generation into their business model, look for the momentum to continue.
About Pete Johnson
Pete Johnson is an experienced financial writer and content creator who specializes in equity research and derivatives. He has over ten years of personal investing experience. Digging through 10-K forms and finding hidden gems is his favorite pastime. When Pete isn’t researching stocks or writing, you can find him enjoying the outdoors or working up a sweat exercising.