6-K
UBS AG (AMUB)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 6-K
REPORT OF FOREIGN PRIVATE
ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
Date: February 7, 2024
UBS Group AG
(Registrant's Name)
Bahnhofstrasse 45, 8001 Zurich, Switzerland
(Address of principal executive office)
Commission File Number: 1-36764
UBS AG
(Registrant's Name)
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Aeschenvorstadt 1, 4051 Basel, Switzerland
(Address of principal executive offices)
Commission File Number: 1-15060
Credit Suisse AG
(Registrant's Name)
Paradeplatz 8, 8001 Zurich, Switzerland
(Address of principal executive office)
Commission File Number: 1-33434
Indicate by check mark whether the registrants file or will file annual
reports under cover of Form
20-F or Form 40-
F.
Form 20-F
☒
Form 40-F
☐
This Form 6-K consists of the transcripts of the of UBS Group AG 4Q23
Earnings call remarks and
Analyst Q&A, which appear immediately following this page.
1
Investor update and fourth
quarter 2023 results
6 February 2024
Speeches by
Sergio P.
Ermotti
, Group Chief Executive Officer,
and
Todd
Tuckner
,
Group Chief Financial
Officer
Including analyst
Q&A session
Transcript.
Numbers for
slides
refer to
the investor
update and
fourth quarter
2023 results
presentation.
Materials and a
webcast replay are available
at
www.ubs.com/investors
Sergio P.
Ermotti
Slide 3 – Key messages
Thank you, Sarah and good morning,
everyone.
2023 was
a defining
year for UBS
as we
acquired Credit
Suisse in
one of
the largest transactions
in banking
history, setting a
new long-term
trajectory for
our franchise.
It was
also an
intense year
that required
exceptional
focus from all
of our colleagues during
periods of significant change
and uncertainty.
We stayed close
to our
clients,
helping
them
manage
a
rapidly
evolving
geopolitical
and
macroeconomic
backdrop,
as
well
as
the
turmoil that occurred
in the financial
system last March.
The strength and
stability of UBS provides
is a direct
result of our decade-long sustainable strategy, an unwavering commitment to maintaining a balance
sheet for
all seasons, and a focus on risk and capital
efficiency.
For these reasons, clients reward UBS with their extended trust and confidence during periods of volatility and
market uncertainty.
And it allowed UBS to credibly step
in and stabilize the Swiss, and wider,
financial system
by taking
over Credit
Suisse.
We have
acquired an
enterprise that
has suffered
from many
years of
unsustainable
capital allocation
and under-investment
in its
businesses and
control framework.
This resulted
in cost
and capital
inefficiencies,
significant
losses
and,
ultimately,
substantial
franchise
erosion.
However,
the
acquisition
accelerates
our
strategic
priorities
by
providing
UBS
with
a
complementary
client
base,
stronger
regional
presence, more
products and services,
as well as
many talented people. This
gives us great
confidence in our
ability to meet our ambitions and deliver long-term
growth and consistently higher returns.
2
Slide 4 – Stabilized Credit Suisse franchise and delivered
on 2023 financial priorities
We made great progress
on our plans
in 2023. We
successfully won
back, retained and
grew client assets
while
beginning the restructuring phase.
We have also
substantially reduced funding costs
and run down
non-core
books. In our first
full quarter as a combined
firm, we stabilized Credit
Suisse’s client franchises and achieved
underlying
profitability.
This
permitted
us
to
pay
down
the
extraordinary
liquidity
support
and
voluntarily
terminate the
loss-protection agreement
guaranteed by
the Swiss
government. We
also provided
important
clarity
for
all
of
our
stakeholders
as
we
finalized
our
target
operating
model.
Notably,
we
established
the
perimeter for Non-Core and Legacy and moved forward
with fully integrating our Swiss domestic operations.
Our progress
continued in the
fourth quarter.
We maintained
momentum with our
clients, with
22 billion in
net new assets in GWM, bringing our total to 77 billion since the closing of the acquisition. In the quarter, we
also cut another 1
billion in exit-rate gross
costs as we move
forward on our
restructuring plans. Nearly 80%
of Non Core and Legacy’s 12 billion decline in risk weighted assets in the second half was driven by our active
wind-downs.
We
achieved
all
of
this
while
maintaining
our
capital
strength.
Our
CET1
capital
ratio
increased
to
14.5%,
helping us to build capacity for higher capital returns while, at the same time, preparing to absorb integration
charges and
tax inefficiencies.
A great
- and
often overlooked
- measure
of the
Group’s
resilience and
self-
sufficiency
is
our
total
loss-absorbing capacity,
which now
stands
at
200
billion. Given
the
ongoing debate
following the events of last March, this is particularly
relevant to me.
Lastly, let me highlight some things I am especially proud of, and which I believe is the essential driver of what
will make this
successful journey
a great story. Our people
have embraced
both our culture
and the opportunity
ahead while collaborating
on the integration.
This will
allow us to
continue to
serve clients
and fulfil our
growth
initiatives. Before I take you through our plans for the next phase of the acquisition, I will
hand off to Todd
to
cover our fourth-quarter results.
3
Todd
Tuckner
Slide 5 – 4Q23 underlying PBT of 0.6bn
Thank you Sergio and good morning,
everyone.
You’ll
recall that with our third quarter earnings, we introduced underlying performance metrics that strip out
items that we
don’t consider
to be representative of
underlying performance
- primarily pull-to-par
effects from
the
purchase
price
allocation
process
and
integration-related
expenses.
In
this
respect,
when
assessing
the
progress
we
are
making
in
our
underlying
performance,
it
is
important
to
remember
that
our
underlying
operating expense baseline
is the combination of the
cost stacks of two globally, systemically important banks,
such
that our
underlying costs
in
absolute terms
remain
elevated, and
will
for some
time. This
quarter,
our
underlying performance also excludes a material
loss relating to our ownership interest in SIX Group.
In my remarks,
I will refer
to these underlying
numbers in US
dollars and compare
them to our
performance last
quarter, unless stated otherwise.
Starting with the P&L on slide 6
[edit: 5]. PBT in the fourth quarter was
592 million, a decrease of 322
million
from the third quarter, mainly driven by lower
client activity and
billable invested assets,
as well as the
UK bank
levy and a
US FDIC special assessment
relating to last year’s
US bank closures.
Credit loss expenses were
136
million this quarter, mainly relating to P&C and the IB.
On a
reported basis,
the fourth
quarter net
loss was
279 million,
including a
net tax
benefit of
473 million,
primarily resulting
from a revaluation
of our
deferred tax assets
as we
completed our
business planning
process.
As we continue to
execute on our integration plans at
pace and benefit from
seasonally higher client activity,
we expect substantial improvement in our first quarter
reported net profit as compared to 4Q23.
Slide 6 – 4Q23 underlying total revenues 10.4bn, down
3% QoQ
Moving to revenues on
slide 6. Group revenues decreased
by 3% sequentially to 10.4 billion, driven
by lower
recurring and net management fees on a reduced, average invested asset base, lower fair value and exit gains
in Non-Core and Legacy, as well as decreased transaction-based revenues across the divisions.
Total reported revenues reached 10.9 billion, which
included 944 million
from pull-to-par and related
effects in
our core businesses. As
mentioned, we also marked down
our investment in SIX
by 508 million
to reflect the
lower valuation of SIX’s stake
in Worldline as well as SIX’s goodwill
impairment relating to its ownership
of the
Spanish stock exchange.
Slide 7 – 4Q23 underlying operating expenses
9.7bn, up 1% QoQ
Moving to slide 7.
Operating expenses for the
Group increased to 9.7 billion,
up 1%. Our combined
workforce
was reduced by around 4
thousand in the quarter,
bringing year-to-date reductions to 17
thousand, or down
11% versus the workforce
of both banks at
the end of
- These reductions
contributed to our
achievement
of around 4 billion in gross run-rate cost saves exiting 2023 when
compared to the 2022 baseline.
Integration-related expenses
were 1.8 billion, of
which 794 million
were personnel-related, including
a pension
benefit equalization
charge of
245 million,
and 604
million from
real-estate and
technology asset
expenses.
The pension charge did not affect CET1 capital as we recorded an offsetting
gain in OCI. On a reported basis,
including integration-related expenses, opex was
11.5 billion.
4
Slide 8 – Global Wealth Management
Turning
to
the
performance
in
our
businesses,
beginning
with
Global
Wealth
Management
on
slide
8.
As
mentioned last quarter, to align with peers, we now report net new money, plus dividends and interest, under
the
label
of
net
new
assets.
We
will
also
continue
to
disclose
net
new
fee-generating
assets,
now
for
the
combined franchise.
We saw continued momentum in flows with 22 billion
in net new assets, with particularly strong performance
in APAC
and the Americas. We also attracted 16 billion of net
new deposits, with net inflows across both the
UBS and
Credit Suisse
platforms, and including
deposit inflows in
the Americas for
the first time
since 2021.
Despite the significant
outflows at Credit Suisse
in the first half
of 2023, we generated
around 54 billion of
net
new
assets
across
the
platforms
for
the
full
year,
as
we
stabilized
Credit
Suisse
and
grew
our
combined
franchise.
Moving on to
GWM’s P&L,
profit before tax
was 778 million,
down 31% sequentially, driven
by lower revenues
and higher operating expenses. Credit provisions were a 7 million
release in the quarter.
Revenues of
5.4 billion
were 3% lower
with decreases
in NII and
recurring fees,
and with
transactional revenues
overall impacted by lower client activity,
but nonetheless strong on the UBS platform, up 10% year-over-year.
Net interest income
was down
2%, reflecting tapering
deposit mix
effects in the
US, and
ongoing deleveraging,
partially offset
by stronger
deposit revenues
on higher
volumes. Recurring
fees were
down 2%,
reflecting a
lower average billing base.
Operating expenses
increased 5% to
4.6 billion, mainly
due to the
FDIC special assessment,
litigation provisions
and higher
marketing and
branding costs.
Important to
note is that
we continue
to see
progress in taking
down
costs
across
GWM
where
we
are
integrating
Credit
Suisse.
Specifically,
in
the
parts
of
our
wealth
business
outside the
US, underlying
operating expenses
ex litigation
and FX
ticked down
in the
quarter and
have dropped
8% compared to
2Q23 on an
exit rate basis.
In the
US, where
a year-over-year
comparison is more
relevant,
costs were down 2% ex financial advisor compensation,
the FDIC assessment and litigation.
Slide 9 – Personal & Corporate Banking (CHF)
Turning to Personal &
Corporate Banking
on slide 9.
In its first
full quarter since
the announcement
of the Swiss
decision at the end of August, P&C generated a
pre-tax profit of 794 million Swiss francs,
up 3%, with lower
revenues
more
than
offset
by
lower
operating expenses
and
credit
charges. As
I
highlighted last
quarter in
connection with
September trends, the
focus on win-back
and coverage alignment
across both Swiss
platforms
continues to
contribute to
strong financial
performance for P&C,
including over
7 billion
of net
new deposit
inflows in the fourth quarter and revenue resiliency.
Net interest
income was down
1%, as
the benefits from
deposit inflows and
higher rates were
slightly more
than offset by the effects of lower loan
volumes and clients shifting deposits
into higher-yielding products. We
expect NII
for
P&C
and
GWM
combined, and
in
US
dollar
terms,
to be
roughly
flat
sequentially in
the
first
quarter,
with higher rates broadly offsetting
the residual effects of
deposit mix shifts and
the initial impact of
financial resource optimization, which Sergio and I will cover in greater
detail shortly. Non-NII revenues in P&C
declined
by
11%,
mostly
driven
by
transaction-based income,
including
lower
client
activity,
particularly
in
Corporate and Institutional Clients.
Credit loss expenses
in the quarter
were 72 million
Swiss francs, mainly
related to defaults
across several names
on the Credit
Suisse platform,
and from aligning
provisioning approaches pertaining
to Credit Suisse’s
watchlist
credits. I would also note that
PPA adjustments have reduced the level of CLE this
quarter. While we have now
substantially
aligned
provisions
and
methodologies
across
both
books,
we
could
see
a
continuation
of
the
elevated levels of CLE in P&C for the foreseeable future
given Credit Suisse’s higher historical credit risk profile
and the current economic environment. Opex dropped by 5% on
lower personnel and real estate expenses.
5
Slide 10 – Asset Management
Moving to slide 10.
Underlying PBT in Asset Management increased
16% to 180 million on
seasonally higher
performance fees
and from
gains on
disposals that
closed in
the quarter,
notably our
joint venture
in South
Korea.
Net
management
fees
were
down
slightly
on
lower
average
invested
assets
in
the
quarter.
Opex
increased 4% to 625 million, mainly from higher personnel
expenses and litigation charges.
Net
new
money in
the
quarter
was
negative
12
billion,
predominantly
from
two
large
outflows
in
indexed
equities, while we continue to see client
demand for SMA and Private Markets capabilities.
Slide 11 – Investment Bank
Turning to the Investment Bank on slide 11. As we said last quarter, since the IB has taken on only select parts
of Credit
Suisse’s investment
bank, we
continue to
consider year-over-year
comparisons to
be instructive
in
describing the performance of the business,
in particular regarding revenues. The operating loss of 280
million
primarily reflects 34% higher costs, mainly personnel and technology related, while revenues from onboarded
Credit Suisse staff are only beginning to build.
Underlying revenues, not including 277 million of pull-to-par accretion and other
effects, increased 11% year-
over-year
to
1.9
billion.
Global
Banking
revenues
increased
69%
with
fee-pool
outperformance
across
key
products and across all regions and particular strength in leveraged and
debt capital markets, as well as strong
performance in
the Americas.
Global Markets
revenues were
down 4%,
reflecting declines
in Rates
and FX,
more than offsetting
growth in equity
derivatives, cash equities and
financing, the latter of
which topped off
its best full year on record. I
should highlight that cash equities gained global market share over the course of
2023.
During the fourth quarter we completed the Credit Suisse
banking team integration, which is already showing
in our M&A
pipeline. Similarly,
for Markets, we expect to
substantially complete onboarding of
the team and
the majority of its
trading positions to UBS infrastructure
by the end of
1Q. With improving market activity,
a
growing banking pipeline and
advanced progress on integration,
we expect the IB
to return to profitability
in
the first quarter.
Slide 12 – Non-core and Legacy
Moving
to
Non-Core
and
Legacy
on
Slide
12.
Underlying
PBT
was
negative
977
million.
In
the
quarter
we
reduced
RWA
by
6
billion,
with
three
quarters
of
the
decrease
from
active
wind-down.
LRD
dropped
by
19 billion, and is down one-third since 2Q23.
Revenues were
162 million
in the
quarter.
As in
3Q, on
average we
exited positions
at or
above our
marks.
Credit loss expenses were negligible in the
quarter now that the majority of the NCL book is accounted
for at
fair value.
Notably,
underlying opex
was down
9% as
we continue
to reduce
headcount. Integration-related
expenses of 749 million consisted mainly of
real estate impairment charges.
6
Slide 13 – Maintained capital strength with CET1 ratio
comfortably above guidance
Moving
to
CET1
capital
and
RWA
on
Slide
13.
Our
capital
position
remains
strong,
with
capital
ratios
comfortably above our guidance and
regulatory requirements. The CET1 capital ratio improved 10
basis points
to 14.5% as the negative
impacts from the reported loss
and dividend accruals were more
than offset by RWA
reductions ex-FX and a net write-up of temporary difference DTAs.
Both CET1
capital and
RWAs
were
significantly impacted
by currency
translation, which
broadly
offset each
other in the CET1 capital ratio. Currency
translation effects also accounted for more of
the 80 billion increase
in LRD this quarter.
We also retained
higher HQLA to underpin increased deposit balances and to address
the
new Swiss liquidity requirements that just took effect. I
will return shortly to comment on how we’re thinking
more broadly about capital,
liquidity and funding,
as we work
towards delivering our
financial ambitions
by the
end of 2026.
Let me also briefly
touch on a
few reporting changes we
are implementing from the
first quarter of
- First,
we are transferring the
high net-worth client segment from
the Swiss Bank of
Credit Suisse to Global
Wealth
Management to best meet our clients’ needs and
align to UBS’s divisional structure. These clients represent an
estimated 60
billion in
invested assets
and 550
million in
annual revenues.
Second, and
as I
highlighted last
quarter,
we are pushing out to our business divisions substantially all balance sheet, equity and P&L items that
were previously retained
centrally.
We will restate
2023 to ensure comparability and
publish an updated time
series ahead of 1Q results.
With that, I’ll hand back to Sergio for
the investor update.
7
Sergio P.
Ermotti
Slide 15 – Attractive business model with unique
global asset gathering businesses
Thank you, Todd.
For more
than a
decade, UBS has
stood out
among its G-SIB
peers for its
favorable mix of
businesses and unique model.
Our global asset gathering
operation and Swiss
universal bank are at the
core of
our strategy, and they are complemented by our capital-light
Investment Bank. Since 2012,
our ambition to be
the world’s leading
global wealth manager
has served us
well, allowing us to
generate over 50 billion
in capital
for shareholders through the end of 2022, while also
investing in sustainable, long-term growth.
Slide 16 – Accelerating our strategy by enhancing
client franchises, capabilities and scale
The
Credit
Suisse
deal accelerates
our
strategy.
We
are
the
only truly
global wealth
manager with
nearly 4
trillion in invested assets across a client franchise that would be
nearly impossible to replicate. Globally,
GWM
clients benefit from our unparalleled
advice, products and services.
We are the number one wealth
manager in
Switzerland, EMEA
and APAC.
In these
regions, our
invested assets
have grown
by at
least 50%
due to
the
acquisition – the
equivalent of a decade
of growth. In
the Americas, we
are a
top player in
the U.S., and
are
number one in Latin America.
The acquisition is
also reinforcing our
position as the
number one universal bank
in Switzerland. This
is not a
function of our size or market share, but the clear result of the value we bring to our clients through our one-
firm approach,
expertise and global
reach that
is particularly important
to our
large corporate and
Small and
Medium Enterprise clients.
With 1.6
trillion in
invested assets,
Asset Management
has improved
our competitiveness
globally and
expanded
our presence in growth markets. We have strengthened the value
provided to clients through complementary
products across key asset classes.
In the Investment
Bank, we are
reinforcing our
competitive position with our
key clients. We
will continue to
build durable
and profitable
market share
in the
areas that
differentiate UBS
for our
clients, while
now deploying
a smaller proportion of the Group’s financial resources, compared to pre-acquisition levels.
Slide 17 – Executing to capture long-term growth and value creation
We finished 2023 with strong momentum in terms of our
integration timeline. While we have full confidence
in our ability to fulfil
our goals, we are not
complacent about the
magnitude and complexity
of the task ahead.
Given
the
evident
structural
issues
with
Credit
Suisse’s
business
model
and
lack
of
profitability,
there
is
a
significant amount of restructuring and optimization that must take place over the next three years before we
can harvest the full benefits of the combination.
As we previously communicated, during
2024 and 2025, we will
incur substantial integration-related expenses
as we materially restructure and remove duplication across our operations. The Non-core and Legacy portfolio
will continue to be a meaningful drag on our results as it is
actively unwound. In addition, over the next three
years, Credit
Suisse’s core
businesses will
also continue
to require
balance sheet
optimization. While
we will
sacrifice some
reported profitability
and growth
in the
short-term, we
are convinced
this will
improve the
quality
of our long-term growth trajectory, and bring greater cost and
capital efficiency. As a result, we are reiterating
our targets to realize
an underlying return on CET1
capital of around 15% and
cost/income ratio of less than
70% as we exit 2026.
8
Slide 18 – Restructuring and delivering on integration
milestones by end-2026
As I’ve said
before, 2024 is
a pivotal year
for UBS. We
are taking a
staged approach in our
execution plan to
minimize the
risk of
disruption for
clients and
employees. With
over six
thousand deliverables
over the
next
three years, the task
is not as simple
as the illustrative
overview you see
on slide 18.
We expect to complete
the
merger of our parent banks
and establish a single
US IHC by the
end of the first
half of the year. The merger of
our Swiss entities should occur
before the end of the third quarter. Completing these key milestones will
allow
us to realize the associated cost, capital and funding benefits. These significant legal-entity mergers are a pre-
requisite for
the first
wave of
client migrations and
will allow
us to
begin streamlining
and decommissioning
legacy platforms
in the second
half of 2024.
This process will
continue into
2025 before we
begin the
transition
towards our target state in 2026.
Slide 19 – Building capacity to invest and achieve
<70% cost/income ratio by end-2026
Again,
I’m
sure
we
all
appreciate
the
significant
costs
associated
with
running
and
combining
two
G-SIBs,
including one that
is still structurally
unprofitable. This is
why a pure
integration cost journey
is not enough.
We
also need to deeply restructure to get to an appropriate cost base.
Therefore, the
realization of our
integration plans and
the run-down of
the Non-core
and Legacy portfolio
is
expected to result
in around 13
billion in gross
cost reductions by
the end of 2026.
In addition to supporting
our cost/income
ratio target,
this decrease
also provides
us with
the necessary
capacity to
enhance the
resilience
of our combined infrastructure.
It will also allow us
to continue to drive
enduring growth by investing
in talent,
products
and
services.
We
will
focus
on
improving
the
client
experience
and
lowering
the
cost
to
serve
by
leveraging our already-leading technology proficiencies.
Slide 20 – Optimizing financial resources to enable sustainable
growth and higher returns
Another key
driver of
value creation
will come
from improved
use of
our financial
resources. Obviously,
the
most prominent
example is
the Non-core
and Legacy
portfolio, where
we expect
our
wind-down efforts
to
result in a
capital release of over 6
billion by the end
of 2026. Of equal
importance, we need to optimize
the
utilization of financial resources across the core businesses to improve returns on
risk-weighted assets.
As you can
see on the
slide, Credit Suisse’s
capital efficiency and
profitability were compromised
in recent years
by capital intensive exposures, underpriced resources and
products, and hurdle rates that were
not aligned to
underlying risks. While
in the
short-term, it will
be difficult
to produce the
best-in-class returns that
UBS had
previously,
our aim is
to narrow the
gap in a
reasonable timeframe. This
will require
re-pricing and/or exiting
low returning exposures. We will also
remain disciplined to ensure that pricing
reflects the underlying risks and
the value
of the
advice, products
and services
we provide.
As we
do this, we
will expect
to capture gross
inflows
in GWM and
P&C as we
prioritize relationships where we
provide more
holistic client coverage. As
I said, we
assume that our
actions to improve
capital efficiency will
result in
a lower growth
trajectory through 2025, a
necessary trade-off to create long-term value.
Slide 21 – GWM – Building on our unrivaled global
scale and footprint
Now, moving to our
medium-term priorities and ambitions for our business divisions, starting with GWM. We
have robust
momentum
across our
entire platform
and our
top objectives
are to
stay close
to clients
and improve
advisor productivity. In Switzerland,
EMEA and
APAC, we expect
PBT margins
to eventually
exceed 40%
in each
of
these
regions
as
we
capture
the
benefits
of
our
fortified
leadership
positions
and
integration-related
synergies.
9
While
our
U.S.
wealth
management business
will
profit
from
our
strengthened
Investment
Bank
and
Asset
Management franchises, it is not directly benefiting from increased
scale related to the acquisition. Therefore,
we need to keep
working on improving our
profitability. Over the next three years, we
will organically invest
to
institutionalize our
platform by
building
out
our
core
banking
infrastructure
to
provide
clients
with
a
more
comprehensive loan
and deposit
offering, and
by rolling
out more
products and
services to
Ultra High
Net Worth
and family and institutional wealth clients.
We
will
further leverage
our
advisory
capabilities through
our
global CIO
platform. In
particular,
we aim
to
provide our international clients who have interests in the U.S.
with more access to our American advisors and
products. We
will also
continue to
invest in
our infrastructure
to augment
the user
experience and
improve
productivity. We expect PBT margins in the
U.S. to remain in
the low double
digits in the
near-term, but we are
confident that the actions
we take will help produce
mid-teens profit margins by
the end of 2026.
This will put
us in a position to explore opportunities to further
narrow the gap to our peers.
Slide 22 – GWM – Ambition to surpass 5trn
of invested assets over next five years
Our actions will
allow GWM to
attract around
100 billion in
net new
assets per annum
through 2025
as we
expect
to
continue
growth
in
our
platform
to
partially
offset
by
outflows
related
to
the
capital
efficiency
initiatives I
described a moment
ago. From
2026, our
aim is
to build
to around
200 billion in
net new
assets
annually by
- Overall,
this level
of organic
growth over
three years
would nearly
add up
to the
Credit Suisse
franchise we
just acquired,
and will
power our
ambition to surpass
5 trillion
in invested
assets. Greater
scale
alongside our cost and capital efficiency measures will support GWM’s ability to achieve improved profitability
with an expected underlying cost/income
ratio of less than 70%.
Slide 23 – P&C - #1 bank in Switzerland with unparalleled
reach and strong returns
In Switzerland,
we are the
leading bank for
multi-nationals and
SMEs, and
we also
serve more than
one in three
households. To
reiterate, our uniqueness
is not driven
by size, but
by our ability
to provide
these clients with
access to innovative products, solutions, digital applications
and global footprint.
In
recent
years,
P&C’s
consistent
investments
to
improve
the
client
experience
and
boost
efficiency
has
supported steady
growth and higher
returns. We will
replicate this playbook
for our
combined client
franchises.
Meanwhile, we
will lower our
cost to serve
by streamlining our
operations, decommissioning
legacy technology
platforms and removing branch duplication. Our ambition is for P&C to
report a cost/income ratio below 50%
as we exit 2026.
Slide 24 – AM – Improved positioning across key asset classes
and growth markets
In Asset Management, we
are building on
our differentiated offering
in Sustainable Investing and SMAs
with
an expanded Alternatives platform, which includes new capabilities in Credit.
Our aim is to keep
growing our
higher margin products, and capture
the benefits of our increased
scale in customized Indexing and a
deeper
regional footprint. We will
do this while building
on our strong partnership with
Global Wealth Management
to drive growth.
While
our
improved
strategic
positioning and
product
offering
will
help
us
meet the
evolving
needs
of
our
clients, we
are not
immune to
structural issues
facing the
asset management
industry. This makes
the realization
of cost synergies
a critical component
of our plan to
get to a
cost/income ratio below
70% by the
end of 2026,
while self-funding investments for growth and efficiency will
be delivered.
10
Slide 25 – IB – Enhancing client offering while maintaining
capital discipline
The
acquisition
has
added
capability
that
were
already
of
strategic
importance
for
our
Investment
Bank.
Therefore,
in terms
of strategy,
clients’ priorities
and risk
discipline, nothing
changes. In
Global Banking,
we
have significantly strengthened our coverage and product teams in growth markets that are aligned to GWM,
notably the
Americas
and APAC.
We
have
reinforced
our
leading
position in
Switzerland. And
globally,
we
expect our broader
and deeper solutions across
M&A, Equity Capital Markets
and Leveraged Capital Markets
to
drive
profitable
market
share
gains.
We
are
already
seeing
the
benefits with
notable
mandate successes
across the globe.
In Global Markets, we are bolstering core products and services that are most relevant to our
clients, including
Electronic Trading,
Financing and
Equity Derivatives.
Our award-winning
Equities and
FX franchises
will now
serve an even larger and broader client base, also supported
by our strengthened Global Research coverage of
the most relevant and fastest-growing sectors. By deploying its products and services across a more diversified
institutional,
corporate
and
financial
sponsor
client
base,
in
addition
to
the
improved
connectivity with
our
clients in
GWM and
P&C, the
Investment Bank
is poised
to achieve
around 15%
return on
attributed equity
over the cycle. And it will do this while consuming
no more than 25% of the Group’s risk weighted assets.
Slide 26 – Non-core and Legacy – driving lower costs
and efficient capital release
As I mentioned before, the active run-down
of the Non-core and Legacy portfolio
releases capital, removes tail
risks
and
complexity,
and
reduces
our
cost
base,
allowing
us
to
improve
our
returns. We
have
made
good
progress to
date. We
have closed over
two thousand NCL
books, including full
exits of
several macro
books,
and are
largely closed
– we
have largely
closed our
non-core Cash
Equities, Convertibles
and Prime
Services
exposures.
To
date, we have
decommissioned around 150 of
NCL systems, and
retired nearly 20%
of its models.
As we
further
wind
down
this
portfolio, we
will
focus
on
economic profitability,
including funding,
operating and
capital
costs.
We
will
also
remain
focused
on
balancing
our
priorities
with
the
needs
of
our
clients
and
counterparties. Our
ambition is
for NCL’s
underlying loss
to move to
around 1 billion,
with the
residual portfolio
of total risk
weighted assets
accounting for around
5% of the
Group’s by the
end of 2026.
By the end
of 2024,
we expect combined risk – credit and market risk risk-weighted
assets to be substantially below 40 billion.
Slide 27 – Balancing resiliency, growth and attractive capital returns
Capital strength has
been a key
pillar of our
strategy, and we remain committed
to maintaining
a balance
sheet
for all
seasons. We
expect to
operate with
a
CET1 capital
ratio of
around
14%. This
will provide
us
with a
substantial capital buffer
relative to our
minimum regulatory requirements
during the integration, but
also as
our capital requirements increase over time.
As
we
fund
growth
with part
of
our
retained
profits,
we
will
also
seek
to
calibrate the
proportion
of
cash
dividends versus buybacks. For
the 2023 financial year, we intend to propose an ordinary dividend
of 70 cents,
a 27% increase
year-on-year. With respect to
our progressive dividend
policy, we are accounting
for a mid-teen
percentage
increase
in
2024.
We
also
plan
to
continue
to
distribute
excess
capital
to
shareholders
via
repurchases. In the short
term, it is
prudent to hold
off until the parent
bank merger is
complete in the
first half
of this year. Then, we expect
to resume buying back
stocks, with a target
of up to 1
billion dollars in 2024.
Our
ambition in 2026 is for total capital returns to exceed
pre-acquisition levels, with share repurchases most likely
being the biggest component.
11
Slide 28 – Rebuilding profitability while restructuring for sustainable
growth
As you can
see from this
slide, in terms of
returns on capital, we
expect to build towards
our 15% return on
CET1 target
as we
exit 2026,
with 2024
still reflecting
the significant
restructuring and
optimization work
taking
place as we integrate Credit Suisse.
Our plan
is not
relying on
overly optimistic
market assumptions.
And, if
necessary,
we have
the flexibility
to
adjust our plans
as needed to
respond to
changes in the
underlying assumptions. When our
cost and capital
efficiency measures are behind us, we expect to increase – we expect our increased
scale and enhanced client
franchises will position us to attain
sustainably higher returns, starting with a reported
return on CET1 capital
of around 18% in 2028.
With that, I hand back to Todd for more details on our plans.
12
Todd
Tuckner
Slide 30 – Our path to ~15% underlying RoCET1
by year-end 2026
Thanks again, Sergio. The strategic and detailed planning we’ve undertaken over the last several months now
informs a clear path
towards our objectives
of generating an
underlying return on
CET1 capital of around
15%
and an underlying
cost-income ratio of
less than 70%
by the time we
complete the integration
of Credit Suisse
at
the
end
of
2026.
In
the
next
few
minutes,
I’ll
describe
the
ways
in
which
we
expect
to
achieve
these
objectives, offer details on trajectories, and comment
on how we’ll measure progress.
I want to emphasize that our plans are
based on the complex work required to restructure
a cost base that at
present supports the infrastructure of two G-SIBs, and to enhance the returns on financial resources deployed
in our core businesses
that have been
diluted by the
acquisition. These significant
efficiency undertakings come
at a cost, whether
through integration-related expenses or somewhat
slower net new asset growth
while we
optimize the balance sheet
over the next few quarters.
Ultimately, the key to delivering our long-term financial
ambitions is the discipline we’re applying now in driving
cost and financial resource efficiency.
Moving to
slide 30,
which provides
an overview
of the
main drivers
of the
expected return
on capital
uplift
between now and the end of 2026. Our financial ambitions are mainly dependent on controllable factors and
market assumptions
that are
in line
with consensus,
rather than
blue-sky scenarios.
Our focus
is on
building
high quality and
sustainable revenue streams
to support healthy
and attractive returns over
the long term.
In
this respect
we’ll drive
most of
the improvement
over the
integration timeline
by right
sizing our
cost base,
optimizing financial resources, and normalizing the tax
rate.
Importantly,
by
building our
plans
primarily around
cost and
resource
optimization, we
retain
flexibility and
optionality in execution. For
example, while we expect
to continue investing for growth
in our core businesses,
we
have
discretion
to
pace
this
spend
in
case
markets
are
less
constructive.
Finally,
as
we
progress
with
simplification
of
our
legal
entity
structure,
we’ll
see
additional
support
to
our
capital
returns
from
the
normalization of the effective tax rate, dropping to around 23% by
2026.
Slide 31 – Revenue plans reflect enhanced capabilities
and improved productivity
Moving to details of our revenue expectations, on slide 31. First, we believe GWM’s income outside of NII will
be one
of the
main drivers
of our
growth. As
we expand
our GWM
invested asset
base and
enhance our
solution
offerings and
capabilities,
we expect
to increase
both recurring-fee
and transaction-based
income, with
stronger
net margins. By staying
close to our clients,
continuing to win back
assets, and offering differentiated products
and services to
help navigate challenging
market conditions,
we expect to
attract around 200
billion in net
new
assets
over
the
next
two
years
while
optimizing
returns
on
financial
resources.
Beyond
2025,
with
the
optimization work largely behind
us, we expect annual
net new asset growth
to build to
200 billion by
2028
and to surpass 5 trillion in assets under management
at that time.
In addition to growing our
asset base, we believe
we’re in a strong position
to offset some of the
structural fee
margin pressure visible in the
industry by leveraging a
unified shelf of CIO-led
products and solutions as
well as
increasing discretionary mandate penetration across our expanded client base. Further positive contribution to
our
GWM
top
line
is
expected
from
transaction-based
fees.
This
growth
is
expected
to
be
driven
by
the
continued expansion of
distribution channels and
product capabilities,
including growing
and leveraging
our
successful
GWM-IB
joint
coverage
initiatives
as
well
as
broadening
our
scalable
transaction-based
advisory
offerings for high- and ultra-high net worth clients, and clients with professional markets expertise. On top of
revenue improvement, we also believe we
can enhance GWM’s net margins and drive greater
returns overall,
by leveraging
the benefits
of increased
scale, realizing
cost synergies
from the
Credit Suisse
integration, and
emphasizing data and AI capabilities to improve advisor
productivity.
13
Second, in our
Investment Bank,
we’re well positioned
to achieve revenue
accretion relatively quickly, especially
as we’re selectively
adding key Credit
Suisse IB resources
directly to the
UBS platform.
As a result,
we accelerate
our IB
strategy by doubling
our Banking
presence in
the US
and building
on our market-leading
strengths in
Switzerland, EMEA and APAC. As the newly-onboarded bankers
return to full productivity over the
next 12-18
months,
we
expect
Banking
to
generate
almost
twice
its
baseline
revenues
by
2026,
assuming
supportive
markets. We
also aim
to drive
incremental client
flow across
Derivatives &
Solutions, Execution
Services and
Financing, with support from
around 400 Credit
Suisse colleagues joining our Markets
business. Additionally,
we
expect
continued
revenue
growth
in
the
IB
from
technology
and
resource
investments
we've
made
in
capabilities
such
as
Research,
FX,
prime
brokerage
and
equity
derivatives,
and
from
increased
connectivity
between the IB and GWM. We also price in a return
to more normalized markets vs 2023.
Moving to net
interest income in
GWM and P&C.
As I mentioned
earlier,
we expect NII
in US dollar
terms to
remain roughly
stable in
the first
quarter of
2024 versus
4Q23. As
we look
out beyond
the first
quarter,
full
year 2024 NII is
expected to decline
by mid-single digits
from annualized 4Q23
levels mainly on
lower rates and
as our financial
resource optimization measures
impact loan volumes.
Over the second
half of the
plan horizon,
we expect NII
to recover,
resulting from funding
cost efficiencies, stable
implied forward rates,
and improved
loan revenues. I’ll cover the steps we’re taking to drive
funding efficiencies in a few moments.
Rounding out the
revenue picture across
core businesses.
We expect stable
revenues in P&C,
outside of
NII, and
in
Asset Management,
as we
take actions
to offset
market headwinds
and potential
dis-synergies from
the
Credit Suisse acquisition while focusing these franchises on driving cost synergy realization and improvements
in
operating
efficiency.
In
particular,
P&C
will
continue
its
focus
on
winning
back
flows,
improving
asset
efficiency,
and
defending
market
share
in
Switzerland
while
Asset
Management
embeds
new
investment
capabilities acquired from Credit
Suisse and continues its key
role in providing
advisory support to our Global
Wealth Management clients.
Finally,
in NCL,
we’re not
pricing in
revenue growth
as we
look forward,
as the
now largely
fair value
book
reflects our expectation of exit prices. The roughly 3.1 billion of PPA
adjustments we made to the NCL accrual
book, before
we tagged
most of
the positions
as held
for sale,
are now
subsumed in
the marks.
Hence, we
expect NCL revenues in any given quarter from here
to be around zero with position P&L from
sales, unwinds
and marks, net of hedging
and funding costs, all to
be broadly offsetting. Of course, as
our first priority in NCL
remains taking out costs
and releasing sub-optimally deployed capital,
we’ll at times sacrifice
P&L on position
exits in pursuit of these aims.
Slide 32 – ~13bn of cumulative gross cost saves to be
achieved by year-end 2026
Turning
to costs on
Slide 32.
Of the
around 13
billion in
gross cost
saves we expect
to deliver
by the
end of
2026, around 4 billion, or one-third, are already reflected in our
2023 exit rate. By the end
of 2024, we expect
to generate
more
than 2
billion in
gross
exit-rate saves,
with more
towards
the latter
half of
the year
after
completion of the largest legal entity mergers. As indicated
on the slide, we expect to drive further
gross cost
saves of
around 4
billion by
the end
of 2025
with the
balance coming
out as
we exit
- The
non-linear
trajectory of cost
saves between 2023
and 2026 reflects
the intensity of
our integration work,
with the legal
entity mergers,
migration of
over a million
clients, and
decommissioning of
platforms requiring
significant levels
of workforce to execute against our timelines, especially
over the next 12-18 months.
As
we
progress
on,
and
ultimately
complete,
these
complex
aspects
of
the
integration,
our
resource
requirements for these various programs
of work will diminish, leading to considerable cost
reductions by the
end of 2025, when we expect to have delivered a substantial portion of our integration milestones. The back-
end portion
of our
cost save
plan relates
mainly to
completing hardware
and software
decommissioning, in
particular switching off
redundant legacy applications and
infrastructure. This includes the
applications in the
various support and control functions,
like Risk and Finance,
where the work is
naturally sequenced to follow
the completion of client-facing technology decommissioning. As
Sergio mentioned, we’ll re-invest part of
the
gross saves generated from the integration into enhancing
the resilience of our technology estate and
funding
organic business growth in our core divisions.
In terms of the
nature of the gross cost
saves, we expect that
roughly half will be personnel-related
costs as we
14
streamline
our
front
office
operations
across
businesses
and
deliver
synergies
in
our
support
and
control
functions.
The
remaining
balance
of
saves
will
be
derived
predominantly
from
hardware
and
software
decommissioning, real
estate
rationalization, and
reduced
service
requirements
from
external providers
and
contractors.
Moving to
integration-related expenses,
which we
expect to
total to
around
13 billion
by the
end of
2026,
including the 4 and a half billion
incurred to date. Our objective is to front-load these
expenses where possible
as they typically
pave the way for
run-rate savings. For example,
in real
estate, we’ve taken restructuring
and
impairment charges on select properties, reducing the
current run-rate cost of our footprint by 400
million per
year,
down 15%
from 2022
levels. This
save comes
as a
result
of taking
1 billion
in integration-related
real
estate charges through the end of 2023, with a payback
of 2.5 years.
This
said,
the
timing
of
integration-related
expenses
and
the
resulting
saves
vary,
depending
on
the
cost
category.
Some charges can
be provisioned upfront,
as in
the real
estate example, while
other provisions
are
recorded later,
like severance costs for personnel
whose services are required
until an integration milestone is
completed,
such
as
the
legal
entity
mergers
or
client
platform
migration.
While
we
remain
focused
on
accelerating
these
costs-to-achieve
future
savings
wherever
possible,
we
nevertheless
expect
to
recognize
integration-related expenses
over the
entire 3-year
planning horizon,
albeit with
as much
as 80
to 90%
incurred
by the end of 2025. Although
the timing will differ, we still expect total integration-related costs to
be broadly
offset in
our pre-tax
P&L by
the recognition
of PPA
-related pull-to-par
revenue effects,
including the
portion
now in the NCL marks, as described earlier.
Slide 33 – Non-core and Legacy to be a key contributor
to Group net cost saves
Turning to NCL costs on slide 33. We expect around half of the Group’s planned 13 billion in gross saves, and
a
considerable majority
of
net
saves,
to
be
achieved as
a
function
of
running down
NCL’s
book
as
well
as
eliminating its broader
cost stack related
to Credit Suisse’s
complex legal entity
structure and its historical
G-SIB
status.
This
includes
expenses
associated
with
governing,
operating
and
maintaining
Credit
Suisse’s
many
regulated legal entities and branches. As I have highlighted,
the mergers of our largest group entities later this
year are expected to
enable further workforce consolidation and management de-layering. For reference,
our
target legal entity structure is presented in the Appendix.
Additionally, with complete exits of larger books of business in NCL, we expect to drive cost saves by reducing
staff aligned
to the
unit and
eliminating expensive-to-maintain technology
applications and infrastructure.
In
this respect, we
expect the trajectory of
cost saves in NCL
to accelerate in the
second half of this
year and to
hasten
further
over
the
course
of
the
following
two
years
depending
on
the
timing
of
larger-scale
exits
of
position books.
Ultimately, our objective is
to limit
the cost
drag from NCL
to a
level substantially
below 1
billion
as we exit 2026, a drop of over 85% when compared to
its 2022 cost base.
Since the formation
of NCL after
the Credit
Suisse acquisition, we’ve
also taken steps
to reduce
the risk
that
any remaining
costs are
left stranded once
we stop reporting
NCL as
a separate segment,
expected in 2027.
We completed most
of this work
ahead of NCL’s
formation when
we reviewed the
way in which
Credit Suisse’s
Corporate
Center
costs
were
allocated
among
divisions.
As
part
of
our
planning
process
we
identified
an
additional 300
million of
such costs
that we’ll
reallocate to
the core
business divisions,
where they
are more
appropriately managed.
This change
will form
part of
the planned
restatements that
I
described earlier.
For
2024, we expect NCL to
incur underlying operating expenses of around
4 billion, generating a pre-tax
loss of
also around 4 billion in light of the zero revenue guidance I offered earlier.
15
Slide 34 – Balance sheet for all seasons remains the foundation
of our success
Moving to our
balance sheet on
slide 34. Maintaining a
balance sheet for
all seasons is
key to everything
we
do. It gives
us the ability
to withstand financial shocks
and the flexibility
to support our clients
in all climates.
It’s especially critical
during this complex
integration process. As
highlighted earlier during
the fourth quarter
review, we’re maintaining appropriately prudent
capital and liquidity
levels while executing
the restructuring of
Credit
Suisse
and
preparing
for
new
regulatory
requirements.
This
is
also
the
case
for
our
key
operating
subsidiaries. With
these considerations
in mind, I’ll
now cover
how we think
about capital,
liquidity and funding
across the Group as we look out over the planning horizon.
Slide 35 – Strong capital position at group and pro forma combined parent
bank level
First, capital. At the end of
4Q, the Group maintained a
going-concern capital ratio of 17.0%, over 200 basis
points above the current Swiss requirements, comprised of 14.5% in CET1 capital and 2.5% in additional Tier
1 capital.
Between 2026
and 2030
our going-concern capital
requirement is
expected to increase
by around
180 basis points to
16.7% as the effects
of the currently
larger balance sheet and greater
market share from
the Credit
Suisse acquisition are
phased-in. To
improve efficiency
of our
capital stack, we
intend to fund
this
increase
by
cost-effectively
building-out
the
permissible
AT1
bucket
over
time,
bringing
the
going
concern
capital ratio to around
18% while broadly maintaining
our CET1 capital ratio
at around 14%.
In this respect,
following last year’s successful raises, we expect
to issue up to 2 billion in AT1 in 2024.
A word
on going
concern capital at
our parent
bank, UBS
AG, on
a pro-forma
post-merger basis.
The main
take-away here
is that
we expect
a healthy
buffer over
regulatory requirements
on a
fully applied
basis and
even
without
the
substantial
regulatory
concession
historically
applied
to
Credit
Suisse
AG’s
investments in
subsidiaries. Any increases
in UBS
AG’s going-concern capital requirements
from greater
market share
and a
larger balance sheet will be funded in much the same way I described for the Group, and by being disciplined
in right-sizing UBS
AG and its
subsidiaries. In terms
of gone-concern capital, I
would highlight that,
for now,
UBS AG’s
standalone requirement
serves as
the binding
constraint for
the Group.
As such,
we consider
the
Group’s current
substantial TLAC buffers
to be
appropriate, and, accordingly,
we intend to
replace maturing
TLAC at similar
tenors. Over time,
as we reduce
the leverage in
our businesses, we expect
to see the
level of
Holdco start to tick down, with some potential
to tighten average spreads in the back book.
On to liquidity
and funding. Beyond our
approach to TLAC
and AT1,
our strategic objective in
the context of
liquidity and
funding is
to balance
efficiency with
resiliency and
safety.
In this
respect, we
maintain liquidity
levels among
the highest in
the industry,
satisfying the more
stringent Swiss liquidity
requirements that
took
effect last month. At
the same time, we’ve begun executing on
a funding plan that drives
significant funding
cost efficiencies over the next 3
years, principally from reducing the size
of our balance sheet. Specifically,
we
expect
to
reduce
LRD
by
over
100
billion
at
constant
FX
via
the
wind-down
of
NCL
and
from
resource
optimization across our core business divisions, driving
down funding needs.
We also
aim to narrow
the structural funding gap
of the Swiss
entity inherited from
Credit Suisse, increasing
the self-sufficiency of
the post-merger Swiss
banking subsidiary.
In this respect,
deposits remain a
key source
of
funding.
We’ll
continue
to
focus
on
winning
them
back,
with
emphasis
on
stability
reflected
in
tenors,
products, and
counterparty selection. In
addition to applying
discipline on deposit
pricing, we expect
to take
actions to
optimize our funding
mix and drive
down costs, including
reducing our
levels of
OpCo by
making
further use of Swiss covered bonds
and tapping an expanded
variety of funding markets.
Overall, as a result of
lower funding
needs, diversified
and
more
stable funding
sources,
tighter issuance
spreads
relative
to 2023
levels, and disciplined deposit pricing, we
believe we can realize funding cost
saves of up to 1
billion by 2026
on top of the saves achieved last year. This is reflected in our long-term NII guidance that
I described earlier.
16
Slide 36 – RWA expected to decrease by ~35bn due to optimization and
NCL unwind
Let me now walk you through our RWA expectations over the next three years. In NCL, we expect the run-off
of its book to
drive a decrease
in risk weighted assets
of 45 billion by
the end of 2026
bringing us to around
5% of the
Group’s total RWAs before
any further post-integration
de-risking. In
our core businesses,
we expect
Basel 3
to increase
RWA
by around
15 billion
beginning in
2025, primarily
from FRTB,
credit risk,
and CVA
changes in the final standard. The core
businesses are also expected to absorb
around 10 billion of additional
RWA, net of 14 billion from converting Credit Suisse’s risk models to the
appropriate UBS standard.
I
would
also
highlight
that
we
expect
the
resource
optimization
work
we’re
undertaking
to
result
in
RWA
reduction
of
around
15
billion
in
the
core
businesses.
Importantly,
this
impact
can
vary
depending
on
the
availability
of
revenue-growth
opportunities driving
accretive
returns. All
told,
over
the
next
3
years, Group
RWA is expected to
drop from its current levels
by 35 billion
at constant FX,
freeing up around 5
billion in CET1
capital.
Slide 37 – Effective tax rate to reduce following key legal entity
mergers
Turning to tax, on
slide 37.
As mentioned, we
expect to
operate with
a relatively high
effective tax rate
in 2024,
mainly due to
losses generated by
various Credit Suisse
entities, primarily in
Switzerland, the US
and the UK,
that cannot at present offset profits in
their counterpart UBS entities in the same jurisdictions. The legal entity
mergers planned
for later
this year
will resolve
a considerable
level of
this inefficiency, driving
down our
effective
tax rate to around 40% by the end of 2024. Further optimization of our legal entity structure,
combined with
improved profitability and opportunities for tax planning, are
expected to drive the effective tax rate to below
30% by the end of 2025, and finally to
our normal levels of around 23% in 2026.
In terms of deferred tax assets, our year-end 2023 balance sheet reflects recognition of around 3 billion in net
tax loss DTAs, mainly relating to the US. Of those, we
expect to amortize around 0.5 billion against
profits and
convert around
2 billion
into temporary
difference DTAs
by the
end of
2025, seeking
to maintain
a balance
equal to
the eligible cap
of 10% of
our CET1 capital.
The remaining level
of recognized net
tax loss DTAs
of
0.5 billion, absent further planning considerations,
is expected to remain relatively stable over the near
term. It
is worth highlighting that the more modest level of tax loss DTAs expected over the next couple of years
limits
the impact of one of the key differentiators between
tangible equity and CET1, signalling their convergence.
Slide 38 – Delivering on our priorities while creating
long-term sustainable value
Finally,
let me briefly
touch on how we
plan to communicate our progress
across the integration
timeline. As
you would expect,
demonstrating the headway
we’re making in our
cost reduction plans is,
and will remain, of
paramount importance. We intend
to regularly report
on developments, and to
track our performance vs the
opex and integration cost trajectories I described earlier,
even when we switch back to focusing on year-over-
year comparisons by 3Q24. NCL risk reduction
will continue to feature in our quarterly performance
reporting.
And we’ll periodically
check in on
where we stand
in terms of
key integration milestones, including
the legal
entity mergers, systems migration of client accounts and infrastructure decommissioning, as well as improving
overall efficiency in the utilization of our financial resources.
With that, I hand back to Sergio
for his closing remarks before we move to Q&A.
17
Sergio P.
Ermotti
Thank you, Todd.
To
re-cap, we
are pleased
with the
progress we
have made
so far.
As you
can see,
and you
heard, we
have
detailed plans to achieve our ambitions.
We are in full execution mode. While our
progress over the next three
years will not be measured
in a straight line, our
strategy is clear.
With enhanced scale and capabilities across
our leading client franchises and improved resource discipline, we will drive sustainable long-term growth and
higher returns.
We are
confident that by the
end of 2026
and beyond, this
will allow us
to deliver significant value
for all of
our
stakeholders.
Particularly,
our
clients
will
benefit
from
even
–
an
even
stronger
products
and
service
capabilities. Our
people will
have a
better platform
to grow
their careers.
And our
shareholders will
benefit
from
higher
capital
returns.
Last
but
not
least,
we
will
remain
a
reliable
economic
partner,
employer
and
taxpayer in the communities where we operate.
With that, let’s get started with
questions.
18
Analyst Q&A (CEO
and CFO)
Kian Abouhossein, JP Morgan
Yes. First of all, thanks for taking my questions. Looking at the slides, I can put together
a revenue picture as
you're giving some details around return on risk-weighted assets
in the long term, as well as your risk-
weighted assets overall absolute. So, I get to
about $48.5 billion of revenues, which implies around 70%
cost
income of $34 billion. And clearly, first of all, I wanted to see if the revenue assumption
that I'm making here
calculation is reasonable and what underlying scenarios
you use to calculate that. And secondly, on the cost
side, clearly, even if I assume some kind of growth rate in kind of cost inflation, I still see that
most of the cost
savings come from your legacy non-core reductions. So, it looks
like a lot of flexibility. So, can you talk a little
bit about – is my calculation correct to some extent?
And secondly, how should I think about the cost
flexibility as it seems to mainly come from Non-core and Legacy?
That's the first question.
If I may, just secondly,
on the Investment Bank. You're clearly making a big investment push, and here I want
to understand at what point do you see delivery
has to be achieved. I think you mentioned
end-2026 in terms
of revenue improvement, but is there any milestones that have to be achieved
order to illustrate that this cost
income will continuously improve not just in the first
quarter?
Todd
Tuckner
Thanks for your questions. Let me take the first.
So, I think in terms of the way you're thinking about
it, I'd
say the key is to think about a cost income
ratio below 70% is really the driver as we
exit 2026. You know,
the revenue picture that we gave, as I commented, is not
based on blue sky scenarios. You see that for two of
the core business divisions, we effectively priced in, you know, flat revenue growth. NCL, we priced
in flat
revenue growth. We talked quite, you know, I think appropriately about what we would expect from GWM
as it improves its asset base. And of course, on the
IB, coming from a low 2023 and given the onboarding of
the Credit Suisse bankers we discussed and getting them
productive over the next 12 to 18 months, one
could see that our revenue picture is, you know, is appropriate in that respect and not toppy.
That said, you know, when you look at, say, the return on RWA, which is I think what you used as a basis,
you know, that is certainly our ambition is to do the financial resource optimization
to improve our – the ratio
of revenues over RWA, and that's clearly something we know we need to
do. You saw in the depiction of
how dilutive the CS revenues have been on that metric.
So clearly, we're going to keep working on that. But
the key really to take away here is that, you know, as both Sergio and I said, we
have the flexibility to, you
know, pace the reinvestments of the $13 billion in gross cost saves depending
on how that revenue trajectory
develops. So, for us, that's really the key, maintaining less than a 70% cost income
ratio. That's where the
discipline comes in and as I said, pricing in what
is an appropriate revenue picture and just ensuring we keep
to the gross cost saves and then we could pace the
reinvestment as appropriate.
Sergio P.
Ermotti
Kian, vis-a-vis your second question on the
IB, I think of course we do expect the
onboarded resources,
particularly in the banking part of the business,
to start to ramp-up to average productivity of the
incumbent
UBS bankers. And that will happen and
is already happening, to be honest, because we
have been observing
good mandates winning. Of course, now what
we need is the second condition how do
I – first one is do we
win mandates? Do we get tractions? And the
answer is clearly yes. So, I'm very pleased with
that outcome.
Now, the most difficult question to answer is, is the market going to be there to
support monetizing those
mandates? And you know what's going on.
It's very difficult to predict the near future. So, past a very, very
hard 2023 but the momentum is very good. So,
I do think that is important to measure that.
19
The other observation I tried to take on
executed transaction will be are we gaining market
shares? How do
we do relatively to our competitors? A third element which
is very important for me, how is the IB
contributing to the value creation in our Wealth Management
and P&C businesses because it is very, very
important, is a pillar, is a very important driver and particularly now in the US but
also for example in
Australia, but also in APAC, in general. We can drive this real value creation by working closer together. But
lastly, it will be over the cycle, can they deliver return on allocated equity, as we've said, as a target? So, it's a
set of short-term and medium-term and long-term
measures that we will use, but I'm confident that
the
trajectory we had in the last seven, eight years,
which has volatility elements, will continue
but in a way that
accrue value to our shareholders and clients.
Kian Abouhossein, JP Morgan
Thank you.
Chris Hallam, Goldman Sachs
Thanks. So, first, on slide 28. If I zoom in on
2026, you've guided to an exit run rates
of 15% return on core
Tier 1. But for the year as a
whole, you flagged double digit, which I guess
is sort of 10% to 12%. So, just
wondering if there's something specific happening later
towards the end of 2026 that's causing a sort
of big
jump up in profitability or perhaps whether I'm just
being a bit too pessimistic on assuming
that double digit
means 10% to 12%? And then second, on distribution.
We have the details in terms of what you want to do
on the dividend this year, also the comments you've made on buybacks for 2024
and for 2025, but I was just
thinking about how you think about the
overall payout ratio longer term, 2026 onwards, and
the split in that
between dividends and buybacks.
Todd
Tuckner
Hey, Chris. So, on the first, I think what's that dynamic is effectively the benefit of having the
full year of
2026 absorb all the savings that, you know, we're working super hard at to achieve
over the next two to
three years. So, during the course of 2026, we're still going
to be taking significant cost out. In particular, the
expectation is more in the middle and back office where, as I mentioned,
you know, things are sequenced a
bit. You know,
we have to get the client tech decommissioning
done and you'll start to see sort of
a lot of the
middle and back office functions, including semi-owned,
where we'll see more of the cost take-out in the
latter part of the journey. And so, what you're seeing really priced in at the end of
226 is the full harvesting,
effectively the complete cost income story whereas in
2026 in-year, of course, you know, you're just having
the averaging effect over the course of the year.
Sergio P.
Ermotti
Yes, Chris. On buyback, of course, in 2026 we're going to have to factor in different considerations. But
generally speaking, I would say that
we want to continue to have a good mix.
I think that our progressive
dividend policy is extremely unlikely to change over the
long term. So, I think that we want to
continue to
deliver a cash dividend growth every year. The pace will be a function as well of where the stock
trades,
right? So, I mean, at the end of the day, there is an element of balancing cash versus
stock depending on
where the stock trades.
Having said that, I do recognize that also from a prudential
and capital management standpoint of
view,
share buybacks offers more flexibility, right? So, what we want to always make sure that our cash dividend is
sacrosanct and our progressive policy is also very, very important. Therefore, we always want to measure this
in two ways. Our dividend will be then benchmark
also in respect of making sure that we have an attractive
story for more yield focused equity investors.
20
Jeremy Sigee, BNP Paribas Exane
Thank you. And apologies, my video is not
working actually so I'm audio only. So, sorry for that. Two
questions if I could. So, I think what you said about
RWA reductions is very welcome, you know, and the
target of $510 billion in the medium term
and that frees up a lot of capital, which is really great to hear.
You've talked about optimization outside Non-core, so within the core divisions, and I just wonder
if you
could sort of talk about that a bit more. Just
give us some examples of the kind of lazy assets
that you think
you can cut. So, that's my first question.
The second one is back on the capital returns.
You talked about 2024 and you talked about 2026 on the
buybacks and I just wondered in terms of how we
think about what you might be able to
do in 2025. Is 14%
CET1 the relative – the relevant thresholds? Are there other constraints that will constrain
you in terms of
what buybacks you can do in 2025? So, does
it have to wait for the Swiss integrations to
be done? Does it
have to wait for non-core milestones? If you just
could talk about the constraints that would affect that,
that
would be great.
Todd
Tuckner
Okay. Hi, Jeremy.
So, on the first in terms of RWA reduction, you were looking for examples
in terms of
optimization in the core. So, I'd say, you know, the classic example would be where on, say, on the Credit
Suisse side. In Wealth Management, to give an example,
we are inheriting a situation where there was just
say a loan relationship between the bank and a client.
And perhaps, you know, we weren't bringing to bear
the holistic client array of services that is our
expectation to sort of do. Now, it's been the blueprint for us in
UBS. GWM. And so, that's just an example
where you have kind of a monoline is a simple example
of that.
Another example could be pricing. So, you
might not be getting the pricing for
the risks that you're effectively
taking with respect to that financing. So, I think those
are two examples where, you know, we need to do
work to ensure the holistic client coverage is brought to
bear in a given situation or we're looking at pricing
opportunities in particular cases.
Sergio P.
Ermotti
Yeah, Jeremy,
in respect of share buyback in 2025, I think it's a
little bit early to discuss that. But I would say
that first of all, the integration, the Swiss topic,
is a 2024 matter. So, by mid-2024 or during 2024 latest, we
know exactly how we manage the integration of
the parent company, the US entities and the Swiss
operation. That will so in 2025 is unlikely to
play a role in our capital return policies. The 14%
is a good
assumption. And what we mean by around 14% means
13.8% to 14.2%, not 14.5%. When we have excess
capital, well above the 14% is because we
are creating the buffer to do share buyback, to offset temporary
timing differences between cost to achieve in our integration
journey and the savings we realize and have
the
necessary buffer to also phase in the reduction of our tax
rate.
So, in a sense, nothing really changes but we do
indeed expect also the underlying profitability to
improve,
and therefore potentially giving us more flexibility. But this is something that we will focus in exactly
12
months' time and we will communicate our
plans for 2025.
Jeremy Sigee, BNP Paribas Exane
That's great. Thanks very much.
21
Andrew Coombs, Citigroup
Good morning. Thank you for taking my
questions. So, the first one would just
be going back to some of the
math that Kian outlined at the start.
I'm just trying to understand your decision-making
process. So, if you
look at slide 20, I think you said the 9% revenue to
RWA post-Basel IV.
So, you're suggesting exit run rate
$46 billion of revenues, 70% cost income, $32 billion
of costs and that's a couple of billion below the
full
year 2026 consensus revenues and full year 2026 costs,
appreciate we’re comparing exit versus full year
there. But with that in mind, could you elaborate
on where you've identified the additional cost opportunities
given that you previously said $10 billion, you're now
at $13 billion and you're on the tape of saying we are
sacrificing some topline growth in order to enhance returns.
So also, where you've made the decision to
perhaps come out of some product areas where there was a revenue opportunity?
That's the first question.
Second question is on capital return. Again,
trying to run the numbers, $510 billion
RWAs, 14% core Tier 1.
You need to be, on that basis, $71.5 billion in core Tier 1 capital. You're at $78 billion today. So, already a lot
of excess capital there, then there's the retained earnings
coming through. So, just trying to understand. Are
there any other moving parts aside from that amortization
in the FINMA waiver between tangible equity
and
core Tier 1 capital over the next three to four years?
Thank you.
Sergio P.
Ermotti
So, I'll let Todd take the questions and only noting that you may have got the revenues wrong, but you may
address this issue.
Todd
Tuckner
Okay. Yes.
So, Andy, hey.
I will just go on the cost side because I think
I addressed the revenue side anyway in
response to Kian. I would – I'd also – it's also important
to point out just quickly on that slide that
as we say in
there, it's pre-impact from the Basel III final and model update so
that, you know, also will impact on the
return of RWA.
In terms of the additional cost opportunities
that we found, as you asked, I mean, first,
I would say we're just
confirming what we said last year about
greater than $10 billion and saying we had to go do the
work to
validate all the details. And so, you know, the $13 billion that we've
come out with, neither Sergio nor I think
that that's, you know, going further. It was for us always the neighborhood of where, you know, we thought
the plan – the detailed bottom-up plans would get
us. And ultimately, when we were communicating greater
than $10 billion, you know, that was an informed estimate of course
because we had done a fair bit of work.
But of course, all the work that we've
done over the last three months validating that, you
know, that
number. So, that's sort of the first thing is just important to emphasize that it's
not as if we've gone deeper.
But in terms – so on that basis, I would just say
that the $13 billion remains for us on a gross basis,
critical.
You know,
we said half is going to be personnel
related. Half is – the other half will be consisting comprised
of things like mainly tech but also real estate, also
third party costs. So, again, it's a validation of what
we've
done and also as I highlighted going through the trajectories,
giving you a sense of when we think these
will
head through.
And just quickly on the – you asked about, you
know, sacrificing topline growth. I think the point that both
Sergio and I have made is just of course when
you do a financial resource optimization work, and
we've done
this before, you know, naturally to reduce the balance sheet means at times, well,
you know, you're going to
be sacrificing revenues as assets come down. And
so, you know, it all comes down to the accretion of return
on CET1 ultimately and how we think about
this in terms of trade-offs. So, that's how I would respond to
that.
And then I think you were saying any other differences, if I took your
point on CET1 and tangible equity. Was
that the point that you were making the differences, I think you
were saying, Andy.
22
Andrew Coombs, Citigroup
It's exactly that. Just trying to get with the
capital build. Thank you.
Todd
Tuckner
Yes. Well, I was just pointing out in terms of convergence, as I highlighted, you know, historically one of the
big differentiators between CET1, which we think, by the
way, is the right is the right model anyway because
that's the basis for being able to buy back shares
and pay dividends, so we think, you know, measuring return
on CET1 capital is right. But we know there's always
interest in that CET1 versus TE. So, what I was
just
suggesting was that our – as our tax loss DTAs, which were one of the big differentiators, are amortizing
down and being converted into temp difference DTAs which are CET1 accretive, that that becomes much
less
of a delta and therefore, you know, signals a move towards convergence.
Sergio P.
Ermotti
Yeah, Maybe let me just add quickly to your comment on driving optimization of
the balance sheet and
return on risk-weighted assets. You mentioned if we are planning to exit products, I have to
say that, you
know, never say never because in the next two or three years, you never know
how developments work out.
But at this stage, everything that we don’t
deem as a product that we want to have is part
of non-core. So,
it's all about repricing the existing core relationships and businesses.
It's not about exiting businesses. I mean,
I'm talking about meaningful businesses, of
course, right? So, I don't expect – it's
really and that's the reason
why it's not an immediate effect because we have to
manage the relationship. We have to manage the
discussion with clients in a way that they understand
risk-reward for us, for them. They understand the value
of the advice we give to clients, the services and
products we give. We also have to make sure that, you
know, where applicable, we stop having discounts. And so, this is over time, of
course, is going to help to
close the gap.
Andrew Coombs, Citigroup
That's great. Perhaps I could just follow-up on the opening
remark, I think you said my revenue calculation
was wrong on slide 20. The $510 billion I think
is post-Basel IV and in the footnote you said
9% post-Basel IV
finalization model update. So, should we be taking
$510 billion times the 9% or $510 billion
times the 10%
on the slide? Just to be clear.
Todd
Tuckner
Well, it would be $510 billion times the 9% since that
would be the return inclusive of the – so that's
apples
and apples.
Andrew Coombs, Citigroup
Brilliant. Thank you.
Anke Reingen, RBC
Yeah. Sorry.
Hopefully that works. If you can talk about
the path from the 15% to the 18% in 2028 return
on core Tier 1 capital. Given you had 15% to
18% before, so how conservative is the timing as
well as the
18% compared to your previous range and how much
is at self-help versus market? And the second
question
is a Q4 question. Your net fee generating assets were negative in Q4. If you can maybe elaborate
a bit on
what's been driving this? Thank you.
23
Sergio P.
Ermotti
Anke, I'll take this one. I think – and you take
the second, Todd. I guess on the exit rate, we are trying to
model what the potential will be and I outline
that we can definitely converge back into a
level of value
creation that is in the middle range since maybe it's
also appropriate to remember that if we wanted to really
reiterate the old story, we would have talked about 15% to 18%., and what we are saying is that
we believe
the exit rate is 18%. So, I believe that the combined
story over time will deliver a better, more stable, less
volatile returns and those returns will be in
the mid of that range between, you know, from above 15%,
around 18%.
So, I would say that's the nuances of the changes
are the one I just mentioned. So, we are not talking about
15% to 18%. I believe that we are well-positioned
to be sustainably in the high teens going forward. I don't
think there is a level of being conservative five years
ahead. We need to really work out the execution of
the
phase and understand what is the potential,
and over time we will fine tune short-term
ambitions.
Todd
Tuckner
And Anke, on the net new fee generating assets
in the quarters, you mentioned they were negative.
Just to
unpack that a bit. We saw good NNFGA on the
UBS platform. What you see a bit is more the Credit Suisse
dynamic in terms of mandates on the Credit Suisse
platform and in the fact that there was a net
outflow of
mandates that also could be as well from relationship
managers who have left. We are countering that by
virtue of having now have an aligned CIO
view and aligned solutions and offerings that we're bringing out
to
both – on both platforms. So, we expect going
forward that, you know, the CS mandates that perhaps we
were seeing a bit less of than ideal. We should be able
to stem that issue a bit going forward from an NNFGA
perspective.
Anke Reingen, RBC
Thank you.
Alastair Ryan, Bank of America
Yeah. Okay.
Apologies. Technology is not my specialty. $100 billion net new assets in 2024 and 2025 but
that feels like about dividends and interest given the
shape of the balance sheet you provide in the slides.
So,
could you just talk – just expand a little bit on
what else the underlying outflows
assumptions you're making
perhaps on some of the relationships you took over
with Credit Suisse whether that's case? And secondly,
cash, now 18% of the balance sheet. Very, very high liquidity coverage ratio. Is that something that's just
the
new run rate or can you bring that down as
you complete the complex legal entity
restructuring? Thank you.
Todd
Tuckner
Hey, Alastair,
I'll take those. So, on your first on net
new assets, you know, the $100 billion over the next two
years just reflects the fact that, you know, to the point that I think we've been
making that while we're going
to continue to grow the asset base, I mean, $100
billion is still $100 billion over the next – each
of the next
two years, $200 billion by the end of 2025
and that's a focus of the team. In terms
of where we think, you
know, the appropriate ambition would be, normally when we're just in growth – full growth
mode and not
looking to also ensure that, you know, appropriate hygiene on the balance sheet,
that's reflecting that
discount in there a bit. We still think it's a strong number. It's still growing the asset base. It's still providing a
basis to grow our revenues, as I highlighted in my comments,
but it is reflecting the fact that in addition to
growing client relationships and bringing more and more aligned products and
solutions to our clients, there
are going to be situations, as we both highlighted,
where, you know, perhaps we see potential outflows
because of decisions we've made around given service
for example, trying to a price alone, potentially
unsuccessfully, and then seeing that roll off and then potentially the collateral moving out of the
bank as a
result. So, it's just appropriate to price in some of that
as we do this, you know, good and necessary work to
ensure ultimately stronger return on RWA and sustainably higher returns in the
long run.
24
In terms of cash or the HQLA that we have,
yeah, you could assume going forward that that
is structurally our
run rate for now just given the new Swiss
liquidity ordinance requirements that we're complying with. So, you
can assume that that's right. Naturally, we're focusing on, you know, winning back deposits and continuing
diversified sources of funding, not least given the
structural funding gap we've inherited from the
Credit
Suisse subsidiary in Switzerland. So, you know, we're taking steps in our
funding plan to narrow that. But in
the end, you can assume that for now, that level of liquidity is sort
of run rate level.
Alastair Ryan, Bank of America
Thank you.
Giulia Miotto, Morgan Stanley
Hi. Good morning. You hear me well? Okay, perfect. So, my first question goes to GWM Americas. I think the
target is low teens until 2026 and then up to
mid-teens PBT margin. So, what strategic
options are you taking
to structurally lift profitability in this division? I think
I heard this – rebuilding the banking platform in-house,
but if you can give us more color on that. So that's
my first longer-term question. Whereas on the short term,
in terms of transaction margins, those are being
subdued for a while and especially in Asia.
What evidence
are you seeing or are you seeing any evidence of that coming
back? Thank you.
Todd
Tuckner
Yeah. Hi, Giulia. So, on – in terms of the sorts of investments we're making, as you mentioned,
you know, we
think the core banking infrastructure work is critical because
that effectively institutionalizes clients much
more effectively in doing that. The more that you have a broader suite of
products and capabilities to offer
clients, the more in effect it becomes, you know, they become stickier. The clients and the advisors just
become stickier. We know that playbook. We run that playbook in every part of the world outside
the US.
And so, it's something that for us is quite fundamental.
And so, we're going to continue to do that and
continue to invest in digital capabilities to
make being both a client and an advisor
of the US business of
GWM better.
There are also some other things that we're doing to bring that
profit margin up. Sergio mentioned in his
comments. A lot of it's also about products and capabilities
and we're seeing that start to hit through. And
that's just in terms of, again, borrowing a page from the playbook
that we use outside the US, it's the global
markets approach. So, it's having a more joint GWM-Investment
Bank approach to serving clients from a
transactional perspective, especially clients
with more sophisticated needs, also from a lending perspective
as
well, having more of a focus on lending solutions
as we've done outside the US as well. So,
I think doing all
that is where we think, you know, just doing the sort of good blocking
and tackling will, you know, should
support the profit margin in mid-teens over the next two
to three years.
In terms of transaction margins in APAC, yeah, I think we are seeing – we actually
saw some good
performance in the fourth quarter from a TRX perspective,
in particular on the UBS platform, which
is
encouraging. So, we're – and also in APAC. Again, given just our diversification in
the region, we're not just
limited to, you know, one location potentially underperforming from an
equity markets perspective, and we
actually saw a good performance in the region. In particular, we saw good performance
in transactions in
Japan this quarter. And so, you know, we have the good, diversified approach to ensure that even if one – as
I said, one particular part of the region isn't generating
the sorts of margins that are ideal for us that we're
able to compensate.
Giulia Miotto, Morgan Stanley
Thanks.
25
Stefan Stalmann, Autonomous
Yes. Good morning, everyone. Thanks for the presentation and for taking my questions.
I hope you can hear
me well. I wanted to first ask on the share buyback restart
this year. I was a bit surprised that you make this
link between the legal entity merger of
the parent banks and the ability to restart the share buyback. Do
you
see actually a direct link there between Group payout capacity and
what happens to the parent bank merger
or is it just a short form for you to say if the
merger works, that's a good indication
that the integration is
online, and that's why I can go back to share buybacks?
And the second question is on capital requirements. You have obviously presented the plan very much
on the
basis of the rules as they currently stand, but we
also have an upcoming review by the government
and we
don't know how that looks like. On a confidence
scale of 1 to 10, where do you think the outcome
will be?
Do you think your numbers will still be proven fine
after this review or do you think it could change?
Thank
you.
Sergio P.
Ermotti
Thank you, Stefan. I think the link between
share buyback and the parent bank merger and the underlying
US
operation and later on, the Swiss one, it's
very relevant because if we have a delay, our ability to start to
deliver on the cost synergies will come just later. And therefore, we would lose capital buffers that we
believe
is necessary. So, I think it's totally there is no gaming or nothing. It's just prudent
reasonable way to look at
the two major risks associated with such an
integration is regulatory approvals to execute legal entity
mergers. We are talking about 50-plus countries. Okay?
And the second one is IT migration. This
is probably
more the 2024 into 2025 as we start to migrate.
So, if we don't get into a good place with our
parent
company merger by the end of the second quarter, we have a delayed effect which has
to be reflected in our
prudence in terms of how we accrue capital.
So, I hope this is very clear now.
In terms of capital requirements, yeah, well, I mean, I can
only say, you know,
watch and listen to what has
been said publicly by different international and domestic
experts around the topic of capital and why Credit
Suisse failed. Credit Suisse didn't fail because of lack
of capital or lack of liquidity per se but it failed
because,
you know, partially,
I would say the loss of trust and confidence,
the lack of underlying profitability and that
created a self-fulfilling problem. I think if you look at regulation, you
know, the regulation was well applied
and fully functioning for UBS. So, the same
regulation should have worked for Credit Suisse.
I do think that – I'm pretty convinced that any authorities
and governments, before taking actions
on capital,
they will also have to sit down and look at
what happened, like the commission that
is investigating on the
matter is doing, and everybody will have to
pose and think about what they could
have done better, being a
little bit more self-critical about what happened. So,
I believe the current regime and no experts is saying that
more capital is necessary. So, I'm not going to give you an answer on my rating of confidence
because there
is only downside on that, but I can only tell you
that facts are telling us a crystal clear story that
capital is not
the way to manage such a situation.
Stefan Stalmann, Autonomous
Very clear.
Thank you very much.
26
Adam Terelak, Mediobanca
Morning. Thank you for the questions.
I've got three on capital, one of which is a clarification.
I wanted to dig
into slide 36, the $15 billion of balance sheet
optimization. Clearly, it's talking about net of gross as well. So,
can we get a feeling for what the underlying
moving parts are because it's clearly going
in different directions
and whether there's any kind of regulatory securitization type
benefit to think about, say non-revenue costing
RWA efficiencies to think about on the forward look. And then linked to
that, clearly the lower RWA outlook
has created lots of flexibility in your plan, but how
do you guys think about redeploying your balance
sheet if
there are profitable growth opportunities particularly given that your stock
is trading above tangible book or
CET1?
And then just a clarification. On the AT1 buildout, it says increasing to 18% by
2029 but I think you
referenced 2026 as well in terms of that Tier
1 capital requirement. So, if you just give us color on the
AT1
buildout timeline would be very helpful. Thank
you.
Todd
Tuckner
So, let me – thanks for that, Adam. Let me
just cover. The last one is 2029 because that's, you know, that is
how we've modeled and also just given the
way our expectations are on the Too Big To
Fail requirements
coming in impacting on going concern
capital out until 2030. So, that is the correct read. In terms
of the first
question on slide 36, so the $510 billion effectively
where we think we get to, of course, is net of growth. So,
there is a growth that is priced in. So, the fact that we
have, say, balance sheet optimization in the core
businesses, we say net of growth. So, these are trade-offs that we're making and
look, we've done this
before and it's, you know, taking the balance sheet in areas where there are opportunities to generate
greater returns on RWA. That's the work that we're doing, and obviously where
there are opportunities to
grow especially to start to begin to harvest the combination
and the scale that we have. Clearly, that will be
the case.
Sergio P.
Ermotti
Yeah, I guess a 5% return on risk-weighted assets is not acceptable, right? So, I think
that's the reason I'm
saying it makes no sense for us to try
to overly impress anybody with growth on the top line if this is
just
destroying value or not sustainable. So, we are willing to take
a step back in terms of growth. But still in some
areas, are we going to grow? Now, It's very important to understand the restructuring element
up until the
end of 2026. Afterwards, we will grow. Of course, we will grow. So, we are not a restructuring story. We will
grow again because our business will grow but from a base that
I believe is going to be much more reliable
and sustainable.
Adam Terelak, Mediobanca
Could I have a follow-up in terms of what
volume of RWA are sitting below kind of your aspiration in terms
of RoRWA? Just trying to size the opportunity in terms
of recycling your risk weights into high growth.
Sergio P.
Ermotti
Well, you look at the balance sheet of Credit Suisse that
we onboarded has revenues on risk-weighted assets
of 5% on average in 2022. Now, we are already taking actions but this is the volume
you have to think
about. So, we were perfectly happy with the return
profiles of our Wealth Management and IB and Swiss
bank operation. So, we need to now bring
it back. And I think it is very important
that, you know, it's all
about giving clear directions to our people. Our new
colleagues from Credit Suisse fully understand that they
are now following what they believe also is the best
way to create value for clients – for shareholders, but
also for clients because we want to be predictable.
We want to be a partner that is there and where the
relationship allows us to tell what are our expectations
and what is the client expectations, and that
we'll
need to be addressed and we now have a clear, aligned way of looking at how to develop
and grow the
business.
27
Adam Terelak, Mediobanca
Right. Thank you very much.
Benjamin Goy, Deutsche Bank
Yes. Hi. Good morning. Two
questions, please, one on the Global Wealth Management
and one on
Investment Bank. If you can add a bit more color
on the $100 billion net new asset run rate
that should rise to
$200 billion per year by 2028. So, just wondering
how much is reduced impact from business exits or kind
of
risk appetite, financial advisor leaving, and
then how much is, say, acceleration of the platform of a unified
platform? And then secondly, sounds like the Credit Suisse bankers you onboarded, pretty low revenues so
far. It's picking up the next one to two years. I was just wondering because you
mentioned for the markets
position that it will be transferred end of Q1, but
you also feel that in sales and trading, the
Credit Suisse
colleagues you onboarded have been underearning
and whether they could see an acceleration
this year.
Thank you.
Todd
Tuckner
Hi, Ben. So, in terms of the run rate of net
new assets from $100 billion, I would say as Sergio
just highlighted
in response to the last question, you know, we for sure will grow. And once we feel like the balance sheet
is
in a better spot, we think that that will build
quickly in terms of, you know, us focusing on growth. So, the
bridge to $200 billion, while we're not disclosing specifically
what we think the numbers are, you can expect
that, you know, certainly in 2026 we should start to see that
come up pretty significantly and then build to
$200 billion by 2028. So, I would say it's
not necessarily just, you know, linear straight line. We should see a
bit of an acceleration early on in 2026, but
I think there's some hard yards that we have modeled in to get to
the $200 billion in the latter part of
that five-year cycle.
In terms of IB productivity on the markets side, I mean,
one of the key points that I highlighted
was, you
know, actually onboarding on the markets side, fully onboarding not only the traders
but their positions,
which is now – it's been 4Q but really it's an intense piece
of work in 1Q where we expect the majority of the
positions to then be onboarded on UBS infrastructure.
Once that happens, you know, we think that the
markets personnel should be able to start
generating, you know, appropriate revenues. Yes, there's a ramp,
but it's not the same as in on the banking
side where that productivity is going to take a longer
ramp as you
might appreciate it, but we should see and we expect
that we'll see better productivity pretty quickly once the
positions are onboarded on to the UBS infrastructure.
Benjamin Goy, Deutsche Bank
Understood. Thank you.
Tom
Hallett, KBW
Morning. Yeah. Hi, guys. So, most of my questions have been answered, but just
maybe going back to NII.
You say it will grow again in the second half of the planning period. Am I right in just assuming
that's the
second half of 2025? So, i.e., kind of NII should
decline three to early 2025? And then secondly, you know,
one of your peers in the US said that deposit
mix changes were kind of ending. Is that what
you're seeing as
well? And could you maybe just clarify the
wider international business, what's
going on with deposit mix
changes there or what you expect going forward? Thanks.
28
Todd
Tuckner
Sure. Hey, Tom.
So, in terms of NII, yeah, we see the
recovery coming from more mid 2025. So that's correct,
that's the right read. So, you know, again, just given how we're pricing in rate reductions,
you know,
whether they come, I think as you know
the different views. But whether they come over 12 months
or 18
months, we're running our models, but we definitely
have rate reductions before we see stability, you know,
into 2025 for sure. And then that stability then corresponds as
well with what we think would be a pick-up
in
loan volumes and loan revenues overall on top of,
of course, the funding efficiencies that I talked about
at
length during my comments that really start to accelerate
the recovery in NII in the latter part of the or the
second half effectively of the three-year planning cycle.
In terms of deposit mix effects, absolutely. We've seen a tapering in the US. We started seeing even last
quarter, even in 3Q, we're seeing that continue to taper. Still seeing a little bit of that, though, where there's
spillover and higher rates in some of the non-US
dollar currencies in particular in Switzerland. So,
we're still
seeing a bit of deposit mix shifts, but we sort
of price them more or less out of our outlook, you know, once
we get beyond 1Q. And in terms of
how that looks across I think the US, we're now – we've seen stability
first time since 4Q 2021 that we've had net
deposit inflows so that's good. In APAC, we've actually seen
some good deposit inflows also not least
just given win-back. So, there's that impact as well.
And in
Switzerland, we're seeing a bit of a slightly downward move
in terms of deposit inflows. So, just to give
you a
sense of sort of the deposit volume as
I see it across the spectrum.
Tom
Hallett, KBW
That's very clear. Thank you.
Andrew Lim, Société Génerale
Fantastic. Thanks for taking my questions.
So, the first one, on capital. I'm really trying to
square your RWA
guidance with how you feel about buybacks.
So, looking at that equation, you know, that $510 billion on
RWAs, obviously quite low versus consensus. But if you
take consensus capital of, say, $80 billion, $81 billion,
then you are looking at about 15.8% CET1 ratio.
So, we even get to the conclusion that your
buyback
potential is quite a lot higher than what you've
indicated or maybe your expectation
for CET1 capital is maybe
materially lower than $81 billion. So, I just
wanted to see how you feel about that.
And then the second question is on the NII guidance
that you've given. Obviously, we've drill down into the
deposit mix shift there. But you’ve noted that
one of your competitors are also one of the big
drivers there
has been deleveraging of Lombard loans and I wanted
to see if that was actually a big driver for
yourselves as
well and how this has impacted your thoughts
on NII for this year and going forward?
Todd
Tuckner
Yeah. Thanks. Thanks for that, Andrew. So, I'll take – on the second one, no, we're not seeing – I mean,
we've had some deleveraging that we've
highlighted in prior quarters but we're not seeing
that as a major
factor in our guidance at this point other than
around the impacts from the resource optimization that I've
highlighted. But in particular around Lombard deleveraging,
we're not pricing that to any significant degree
into our guidance. And I was just trying to pick
up on your first point where you were, sorry, you were trying
to square if – where the RWA levels are in terms of how that informs the way you
want to think about share
buybacks? I just want to understand your
point if you can repeat them.
29
Andrew Lim, Société Générale
Yes. So, let’s say we’re taking that consensus of $81 billion CET1 capital, you’ve indicated
$510 billion on
RWA. So, that would be 15.9% CET1 ratio. So, actually
it is quite a lot of buffer, maybe $5 billion or so above
$5.5 billion buybacks that you might be pointing
towards for 2026. So, you know, there’s either a lot more
capacity for you to actually push up your buybacks
there or maybe you’re thinking that CET1 capital might
be
a bit lower than what consensus think. So,
I just want to see what you think about it.
Todd
Tuckner
Yeah, I think – okay.
Clear. So, yeah, I think in terms of your CET1 capital calculations, I'm not sure that
squares with how we model under one baseline scenario.
But I think it's fair to say that, you know, if we
generate as we go out to 2026, the extent to
which we're able to generate the returns that
we expect to
generate at the end of 2026, that there will be sufficient
capacity, as Sergio said, to be able to undertake as
much share buybacks as we had, in fact, more so than pre-acquisition
levels. So, I think, you know, I won't
comment specifically on whether your CET1 number
is the same number we consider under
one scenario but
I think it's fair to say that there is share buyback capacity naturally
if we hit these targets that we've set
out.
Andrew Lim, Société Générale
Great. Thanks.
Nicolas Payen, Kepler Chevreux
Yes. Morning. I have two questions, please. Two on Wealth Management. The first one would be on your
pre-tax profit margin targets in the US. You're targeting mid-teens by 2026 and still significantly below what
your US peers are doing. So, I wanted to know what
kind of levers you can pull through to have this
convergence towards the profitability levels that we are seeing
of the US peers. And the second one will
be
on the net inflow that you are targeting. Is there any geographies
where you see the most potential or where
you are the most excited about where you – where the CS merger is bringing
new capabilities and new
outlook? Thank you.
Todd
Tuckner
Yeah. Thanks, Nicolas. So, on the – look, on the pre-tax profit, you know, as we've laid out, I think Sergio in
his prepared comments and mine in response to a question earlier, you know, we're building back to mid-
teens through the work that we've described, which
we think is quite important at that point
in time, getting
to what we think is an appropriate level given, you know, where we are now. Then at that stage, we have,
you know, options to consider beyond that to narrow the gap further, and that's certainly the plan. So, you
know, it's a little bit of walk before we run and we wanted to just be clear that
we, you know, the things that
we think that need to happen in the US business
that we’re going to do over the next three years will set
us
up for success and being able to sort of then,
at that stage, drive greater returns and narrow the gap
further
beyond 2026.
In terms of the geographies in GWM that
we're excited about, I mean, just off the top, and I've talked
about
this before, but certainly places where we become really meaningful,
we're excited about many places that
the CS integration brings to bear on Wealth. But, you
know, when it comes to minor places where,
meaningfully, change is what we had in the particular region just given maybe a focus
on different client
segments, maybe we exited. So, two examples
come to mind would be Brazil, more on
the former in terms of
the client segment we focused on. Another
is Australia where we exited, again more of an affluent practice
that we had many years ago, and we have
an opportunity now to inherit a business
in Australia aligned, by
the way, with the IB in Australia which is quite exciting. And that business is more, you know, the high net
worth and the ultra that is our bread and butter. So, two examples where, and for different reasons of what
excites us in terms of the acquisition.
30
Nicolas Payen, Kepler Chevreux
Thank you.
Piers Brown, HSBC
Yeah. Good morning. Most of my questions have been answered, but maybe just
a final one on litigation.
Just whether there's anything in the plan for
a sort of a business as usual normalized charge
for litigation. I
know you've taken a lot of adjustments on CS acquisition
and you've gotten the $4 billion of balance
sheet
reserves at this stage, but having had a good chance
to look at the case book at this point.
Is there anything
in there which you think might still burden the P&L over the
course of the targets that you’ve laid out this
morning? Thanks.
Todd
Tuckner
Hey, Piers. Thanks for the question. Yeah, I mean, just refer you to the litigation note which, you know, gives
both the UBS heritage and Credit Suisse heritage
legacies there, say that's the best bet. Otherwise,
I’ll just tell
you that our provision levels are augmented by the PPA that I described in August. We're comfortable with
the levels we're at just given the – where those matters
sit, but that's, you know, all I would comment in
terms of litigation at this stage.
Sergio P.
Ermotti
I won't abuse of your patience. You have been with us, thank you, for 2 hours-plus.
Thanks for the questions.
Thanks for attending. I hope you got enough
information. But most importantly, if you have any further
needs or any further questions, please reach out to Sarah's
team, IR, or I'm sure between myself and Todd,
we'll have a chance to catch-up with many
of you in the next few weeks.
Thank you for attending and enjoy the rest of
the day. Thank you.
31
Cautionary statement regarding forward-looking
statements
This transcript contains statements that
constitute “forward-looking statements,” including but not
limited to management’s outlook for
UBS’s financial
performance, statements relating to the anticipated effect of transactions and strategic initiatives on UBS’s business and future development and goals or
intentions to achieve climate, sustainability and
other social objectives. While these forward-looking statements
represent UBS’s judgments, expectations
and objectives concerning the matters
described, a number of risks, uncertainties
and other important factors could cause
actual developments and results
to differ materially from
UBS’s expectations. In particular,
terrorist activity and conflicts in
the Middle East, as well as
the continuing Russia–Ukraine war,
may have significant impacts on global markets,
exacerbate global inflationary pressures, and slow
global growth. In addition, the ongoing conflicts may
continue to cause significant population displacement, and lead to shortages of vital commodities, including
energy shortages and food insecurity outside
the areas
immediately involved
in armed
conflict. Governmental
responses to
the armed
conflicts, including,
with
respect to
the Russia–Ukraine
war,
coordinated successive sets of sanctions
on Russia and Belarus, and
Russian and Belarusian entities and nationals,
and the uncertainty as
to whether the
ongoing conflicts will
widen and intensify, may continue
to have significant
adverse effects on
the market and
macroeconomic conditions, including
in ways
that cannot be anticipated.
UBS’s acquisition of the Credit
Suisse Group has materially
changed our outlook and strategic
direction and introduced new
operational challenges. The integration of the Credit
Suisse entities into the UBS structure
is expected to take between three
and five years and presents
significant risks,
including the risks that UBS Group AG may be unable to achieve the cost reductions and other benefits contemplated by the transaction.
This creates significantly greater uncertainty about
forward-looking statements. Other factors that may affect
our performance and ability to achieve
our
plans, outlook and
other objectives also
include, but are
not limited to:
(i) the
degree to
which UBS
is successful in
the execution of
its strategic plans,
including its cost reduction and efficiency initiatives
and its ability to manage its levels
of risk-weighted assets (RWA) and leverage
ratio denominator (LRD),
liquidity coverage ratio
and other financial resources, including
changes in RWA assets and
liabilities arising from higher
market volatility and the
size of the
combined Group;
(ii) the
degree to
which UBS
is successful
in implementing
changes to
its businesses
to meet
changing market,
regulatory and
other
conditions, including
as
a result
of
the acquisition
of the
Credit Suisse
Group; (iii)
increased inflation
and interest
rate volatility
in major
markets; (iv)
developments in the macroeconomic climate and in the markets in which UBS operates or to which it is exposed, including
movements in securities prices
or liquidity, credit spreads,
currency exchange rates,
deterioration or
slow recovery in
residential and
commercial real estate
markets, the
effects of economic
conditions, including increasing inflationary
pressures, market developments, increasing
geopolitical tensions, and changes
to national trade policies on
the
financial position or creditworthiness of UBS’s clients and counterparties, as well as on client sentiment and levels of activity; (v) changes in the availability
of capital and funding, including any adverse changes in
UBS’s credit spreads and credit ratings
of UBS, Credit Suisse, sovereign issuers, structured
credit
products or
credit-related exposures,
as well
as availability
and cost
of funding
to meet
requirements for
debt eligible
for total
loss-absorbing capacity
(TLAC), in particular in light of the
acquisition of the Credit Suisse Group; (vi) changes
in central bank policies or the implementation
of financial legislation
and regulation
in Switzerland, the
US, the
UK, the
EU and
other financial centers
that have
imposed, or
resulted in,
or may
do so
in the
future, more
stringent or
entity-specific capital,
TLAC, leverage
ratio, net
stable funding
ratio, liquidity
and funding
requirements, heightened
operational resilience
requirements, incremental tax requirements,
additional levies, limitations on permitted activities,
constraints on remuneration, constraints on
transfers of
capital and
liquidity and
sharing of operational
costs across the
Group or other
measures, and the
effect these will
or would
have on
UBS’s business
activities;
(vii) UBS’s ability to successfully
implement resolvability and related regulatory requirements
and the potential need to make
further changes to the legal
structure or booking model of
UBS in response to
legal and regulatory requirements and
any additional requirements due to
its acquisition of the Credit
Suisse Group, or other developments; (viii) UBS’s ability to maintain and improve its systems and controls for complying with sanctions in a timely manner
and for the detection and prevention of money laundering to meet evolving regulatory requirements and expectations, in particular in current geopolitical
turmoil;
(ix)
the
uncertainty arising
from
domestic stresses
in
certain major
economies; (x)
changes in
UBS’s competitive
position,
including
whether
differences in
regulatory capital
and other
requirements among
the major
financial centers
adversely affect
UBS’s ability
to compete
in certain
lines of
business; (xi)
changes in
the standards
of conduct
applicable to
our businesses
that may
result from
new regulations
or new
enforcement of
existing
standards, including
measures to
impose new
and enhanced
duties when
interacting with
customers and
in the
execution and
handling of
customer
transactions; (xii) the liability to which
UBS may be exposed, or possible constraints
or sanctions that regulatory authorities might impose on
UBS, due to
litigation, contractual
claims and
regulatory investigations,
including the
potential for
disqualification from
certain businesses,
potentially large
fines or
monetary penalties,
or the
loss of
licenses or
privileges as
a result
of regulatory
or other
governmental sanctions, as
well as
the effect
that litigation,
regulatory and similar matters have
on the operational risk component of
our RWA, including as
a result of its
acquisition of the Credit
Suisse Group, as
well as the amount of capital
available for return to shareholders;
(xiii) the effects on UBS’s business,
in particular cross-border banking, of
sanctions, tax or
regulatory developments
and of possible
changes in UBS’s
policies and practices;
(xiv) UBS’s ability
to retain and
attract the employees
necessary to generate
revenues and to manage, support and control its businesses, which may be affected by competitive
factors; (xv) changes in accounting or tax standards or
policies, and determinations
or interpretations affecting the
recognition of gain or
loss, the valuation
of goodwill, the recognition
of deferred tax assets
and
other matters; (xvi)
UBS’s ability to
implement new
technologies and
business methods,
including digital services
and technologies,
and ability to
successfully
compete with
both existing
and new
financial service
providers, some
of which
may not be
regulated to
the same
extent; (xvii)
limitations on
the effectiveness
of UBS’s
internal processes
for risk
management, risk
control, measurement
and modeling,
and of
financial models
generally; (xviii)
the occurrence
of
operational failures, such as fraud, misconduct, unauthorized trading, financial crime, cyberattacks, data leakage and systems
failures, the risk of which is
increased with cyberattack threats from
both nation states and non-nation-state
actors targeting financial institutions;
(xix) restrictions on the ability
of UBS
Group AG to
make payments
or distributions,
including due
to restrictions
on the ability
of its
subsidiaries to
make loans or
distributions, directly
or indirectly,
or, in the case of financial difficulties, due to
the exercise by FINMA or the
regulators of UBS’s operations
in other countries of their
broad statutory powers
in relation
to protective
measures, restructuring
and liquidation
proceedings; (xx)
the degree
to which
changes in
regulation, capital
or legal
structure,
financial results or other factors may affect UBS’s ability to maintain its stated capital return objective; (xxi) uncertainty over the scope of actions that may
be required by UBS, governments and others for UBS to achieve goals relating to climate, environmental and social
matters, as well as the evolving nature
of underlying science and industry and the possibility
of conflict between different governmental standards
and regulatory regimes; (xxii) the ability of UBS
to access capital
markets; (xxiii) the ability
of UBS to
successfully recover from
a disaster or
other business continuity problem
due to a
hurricane, flood,
earthquake, terrorist attack, war, conflict (e.g., the Russia–Ukraine war),
pandemic, security breach, cyberattack,
power loss, telecommunications failure
or
other natural or man-made event,
including the ability to function
remotely during long-term disruptions such
as the COVID-19 (coronavirus)
pandemic;
(xxiv) the level of success in the absorption of Credit Suisse, in the integration
of the two groups and their businesses, and in the execution of the planned
strategy regarding cost reduction
and divestment of
any non-core assets,
the existing assets
and liabilities of
Credit Suisse, the level
of resulting impairments
and write-downs, the effect of the
consummation of the integration
on the operational results, share price
and credit rating of UBS – delays,
difficulties, or
failure in closing the transaction may cause market disruption and challenges for UBS to maintain business, contractual and operational relationships; and
(xxv) the effect that
these or other
factors or unanticipated
events, including media
reports and speculations,
may have on
our reputation and
the additional
consequences that
this may
have on
our business
and performance.
The sequence
in which
the factors
above are
presented is
not indicative
of their
likelihood of
occurrence or
the potential
magnitude of
their consequences. Our
business and
financial performance could
be affected
by other
factors
identified in
our past
and future
filings and
reports, including
those filed
with the
US Securities
and Exchange
Commission (the
SEC). More
detailed
information about those factors is set forth in documents
furnished by UBS and filings made by UBS with
the SEC, including the Risk Factors filed on Form
6-K with the 2Q23
UBS Group AG report
on 31 August 2023
and the Annual Report
on Form 20-F for
the year ended
31 December 2022.
UBS is not under
any obligation to (and expressly disclaims any obligation to) update or
alter its forward-looking statements, whether as a result of new information,
future
events, or otherwise.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly
caused this report to be signed on their behalf by the undersigned, thereunto
duly authorized.
UBS Group AG
By:
/s/ David Kelly
_
Name:
David Kelly
Title:
Managing Director
By:
/s/ Ella Campi
_
Name:
Ella Campi
Title:
Executive Director
UBS AG
By:
/s/ David Kelly
_
Name:
David Kelly
Title:
Managing Director
By:
/s/ Ella Campi
_
Name:
Ella Campi
Title:
Executive Director
Credit Suisse AG
By:
/s/ Ulrich Körner
_____
Name:
Ulrich Körner
Title:
Chief Executive Officer
By:
/s/
Simon Grimwood
_
Name:
Simon Grimwood
Title:
Chief Financial Officer
Date:
February 7, 2024