Investment banking and stock trading businesses are attracting large amounts of money. UBS Group AG's Q3 profit soared by 74%.

Swiss financial giant UBS Group AG has recently announced third-quarter profits that exceeded market expectations, primarily due to a significant increase in revenue from its investment banking and stock trading operations, as well as lower-than-expected legal costs that significantly boosted overall performance. Following US President Donald Trump's drastic reduction in tariffs in April, global stock markets have seen a super bull market, leading to increased activity in global IPO financing and mergers and acquisitions, driving financial giants like UBS Group, Nomura, Goldman Sachs, and Morgan Stanley to achieve a surge in performance, particularly in revenue from stock trading and investment banking businesses, reaching their strongest levels in years. The European banking giant, headquartered in Zurich, said on Wednesday that net profit for the three months ending in September soared 74% year-on-year to $2.5 billion, compared to analysts' consensus estimate of around $1.4 billion for UBS's net profit. The profitability results benefited from strong growth in stock trading and investment banking activities, as well as releases related to French tax evasion cases and legacy legal issues with Credit Suisse. In early 2023, UBS was rescued and acquired by its longtime competitor Credit Suisse under the auspices of the Swiss government. UBS's key wealth management division saw better-than-expected net inflows of $38 billion in the third quarter, despite pre-tax profits falling below expectations for the division. Revenue from UBS's investment banking division grew by a significant 23%, mainly due to large merger transactions and IPOs benefiting from the increased trading activity in global stock markets, which also greatly boosted the investment banking businesses of Wall Street peers like Goldman Sachs, JPMorgan, and Morgan Stanley. Within UBS's investment banking division, global banking revenue grew by a significant 52% year-on-year, while trading-related business revenue increased by 14%, with both segments achieving record highs for the third quarter in the period. For UBS CEO Sergio Ermotti, this strong quarter of business growth may provide some respite from a period of adverse events as the banking giant has faced a series of negative developments, including the bankruptcy of US auto parts supplier First Brands. Additionally, with the Swiss government proposing an additional $26 billion in capital requirements and Swiss courts opening the door for claims against Credit Suisse's AT1 bonds, the bank is currently facing several years of capital and claims uncertainty. UBS also stated in its performance report that the integration of its business with former competitor Credit Suisse has made further positive progress, with over two-thirds of Swiss client accounts having been migrated. The uncertainties surrounding how much additional CET1 capital UBS will ultimately need and the AT1 bond claims lawsuits have somewhat suppressed UBS's stock price. Investors are generally concerned that the bank's dividend could be affected, but despite this, UBS ADR prices have risen by over 35% in the US trading market this year, vastly outperforming the S&P 500 index. UBS's ADR has repeatedly hit new highs this year, and if uncertainties regarding CET1 and AT1 ease, the bank's stock performance may be strengthened. After the strong performance data was released, UBS ADRs rose over 12% in pre-market trading in the US. In its latest performance outlook, UBS management stated that investment banking activity in the fourth quarter may return to normal growth compared to the relatively strong growth period a year ago. Regarding the strong stock trading business brought about by the booming stock market, the institution emphasized that valuations for most asset classes are at historic highs, and investors are increasingly focusing on hedging downside risks, so business related to stock trading may return to its normal growth trajectory. Last week, UBS reshuffled its leadership, proposing Markus Ronner to succeed Lukas Gaehwiler as Vice Chairman. Michelle Bereaux will serve as UBS Group's head of compliance and operational risk control, while current head of non-core unit Beatriz Martin will become Group Chief Officer. Internally, UBS is studying the impact of the bankruptcy of First Brands Group on some of its investment funds. UBS has over $500 million in exposure to the debt of First Brands and related supply chain finance agreements, spread across investment funds including UBS Hedge Fund Solutions and UBS O'Connor. These risk exposures are primarily located in the institution's investment funds, rather than reflected on UBS's balance sheet, although the issues have raised some questions from investors about UBS's risk management. The bankruptcy has also cast a shadow on the sale of UBS's O'Connor hedge fund business to Wall Street financial giant Cantor Fitzgerald. The AT1 shockwaves are far from over Earlier this month, a significant ruling by a Swiss court added new legal uncertainty to UBS. To the surprise of UBS investors, the Swiss court stated that the Swiss government's decision in 2023 to zero out around $17 billion in AT1 convertible bonds issued by Credit Suisse was deemed an illegal measure. In response, UBS announced plans to appeal this decision in its performance report released on Wednesday. Approximately 3,000 investors have claimed that the government's decree in March 2023 to write down an additional 16.5 billion Swiss francs (approximately $20.5 billion) in Additional Tier 1 (AT1) bonds was unlawful, should be revoked, and the write-down should be restored. Therefore, this significant ruling by the Swiss court brings new hope for long-term holders of Credit Suisse bonds whose investments were wiped out during the government-brokered rescue and acquisition of Credit Suisse by UBS Group AG. The decision to zero out AT1 bond assets during the rescue of Credit Suisse was a highly controversial aspect of Switzerland's response to the country's second-largest bank's liquidity crisis, as traditionally losses should first be borne by shareholders rather than bondholders. The Swiss government and the Swiss Financial Market Supervisory Authority (FINMA) argued at the time that investors should be aware of the conditions contained in the bond "fine print". UBS has already initiated previously announced stock buybacks, with up to $2 billion in buybacks in the second half of this year, and the total stock buybacks for the year are still expected to reach $3 billion. The institution stated that the CET1 capital adequacy ratio at year-end will reflect provisions for buybacks through 2026.