4 Pillars Of UBS Story: Morgan Stanley Upgrades To Overweight

Morgan Stanley has upgraded UBS Group AG (USA) UBS to Overweight from Equal Weight on the basis of four pillars: higher dollar rates, cost management, improved transactional activity and strong capital position.

Rating's Justification

The brokerage believes UBS’ wealth management business and trading environment should benefit from strong USD rates and steeper curve.

“While rates moves have been mostly baked in by the market, our upgrade on the transactional side is the next step. We not only see it in the US, but across global wealth management business,” analyst Magdalena Stoklosa wrote in a note.

In addition, Stoklosa is 3 percent ahead of consensus on underlying costs by 2018 given expectations of more tangible cost savings and relentless operational focus.

Further, the analyst sees upside from improved market activity, especially in equities (+5/8 percent over the next two years), while a strong capital position should provide enough cushion for the bank to meet stricter Basel IV regulation.

"UBS offers leverage to stronger markets through improved capital markets revenues, and higher private banking activity: we are translating into a stock call our strategists' view of stronger Equities into 2017," Stoklosa highlighted.

At last check, shares of UBS had risen 2.73 percent on the day to $16.57.