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UBS net income doubled compared to last year and earnings per share came out some 70% ahead of consensus. While this might look impressive at first look, the gain was mainly due to a 1.3B franc tax credit from earlier losses. Sales came out in line with weaker wealth management revenue offset by higher equity trading and investment bank revenue. Surprisingly the division where most emphasis is placed, is also the weakest. The bank also delayed by a year its profitability target, due to potentially stricter “too big to fail” regulations.

Indeed last month Bloomberg reported a rumour stating that “Switzerland’s finance ministry will require the country’s biggest banks to have capital equal to about 5 percent”.  This has been confirmed a day later, which is necessary considering the systematic risk in Switzerland is among the highest in the world with UBS and CS assets roughly three times bigger than the Swiss GDP. Additionally the Swiss bank still faces the difficult environment of a strong franc and low interest rate.

UBS shares are up about 18% this year vs the SMI unchanged, and it trades at a slight premium to peers; a re-rating downwards could therefore be in the cards. Technically the stock broke below the short-term trendline downwards with next support seen at CHF 18.00 and 17.50

Jordan reaction to Draghi this evening?

At 18:00 this evening the SNB president Jordan will give a speech on monetary policy and the health of the Swiss financial sector. There is a chance he will react to Draghi’s very dovish statement that further rate cuts are on the table. Anyhow, the SNB will remain very dependent on measures taken by the ECB, hence, further rate cuts from the SNB cannot be ruled out. As both central banks, the ECB and the SNB, are expected to remain accommodative, the EURCHF should move sideways between 1.07 and 1.10. On the other the franc should weaken further against the US dollar, the Pound or even the Yen, where their respective central banks are 

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