ZURICH (Reuters) - A long-awaited turnaround in UBS's wealth management business helped Switzerland's biggest bank deliver its second-best start to a year since the financial crisis.
Rising interest rates, a booming stock market and improved investor sentiment boosted the group's U.S. business, while improving Asian markets saw clients there begin taking more risks after a slowdown in late 2015 blunted trading appetite.
The world's largest wealth manager said on Friday net profit for the first three months of 2017 jumped 79 percent to 1.3 billion Swiss francs ($1.31 billion), beating the highest forecast in a Reuters poll.
Shares were seen opening 3.5 percent higher in Swiss premarket indications by bank Julius Baer.
"The key highlight is a great recovery in the most important Wealth Management unit with an impressive net new asset growth rate," Baader Helvea analyst Tomasz Grzelak said in a note, reiterating a "buy" rating on the bank's stock.
"We think that this well-needed development will significantly lower investor concerns about the key UBS growth engine."
Net new money, an important indicator for future revenue in private banking, came in at 18.6 billion francs at UBS Wealth Management -- a 7.6 percent rise far ahead of the bank's 3 - 5 percent growth target -- and $1.9 billion at Wealth Management Americas.
UBS had said it hoped optimism surrounding new U.S. President Donald Trump's proposed policies would boost its core wealth management business.
That optimism -- communicated just seven days after Trump took office in January -- translated into a 10 percent rise in transaction-based income for Wealth Management Americas, even as the unit's gross margin dipped compared to the previous quarter.
At its wealth management unit outside North America -- traditionally more profitable but facing greater pressure from negative and low interest rates -- a rebound in trading generated record revenues and profit before tax in Asia Pacific.
Gross margins in wealth management rose quarter-on-quarter for the first time in two years, a metric analysts had been looking to as an important sign of an anticipated rebound.
Meanwhile UBS's common equity Tier 1 (CET1) ratio, a closely watched measure of balance sheet strength which the bank uses as a benchmark for its dividend, rose to 14.1 percent from 13.8 percent at the end of 2016.
This moved it further ahead of Credit Suisse, which expects a CET1 ratio of around 13.4 percent even after it completes a 4 billion franc rights issue.
UBS's CET1 leverage ratio also edged up slightly to 3.55 percent, ahead of the 3.5 percent required by Swiss regulators by 2020.
The bank confirmed its target of cutting costs by 2.1 billion Swiss francs by the end of 2017 versus 2013, saying it had saved 1.7 billion francs by the end of the first quarter.
($1 = 0.9947 Swiss francs)
Editing by Michael Shields and Alexander Smith