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: November 8, 2023
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 3Q23 Earnings call remarks
and Analyst Q&A, which
appear immediately following this page.
1
Third quarter 2023 results
7 November 2023
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 third quarter 2023 results presentation.
Materials and a webcast
replay are available at
www.ubs.com/investors
Sergio P.
Ermotti
Slide 3 – 3Q23 key achievements
Thank you, Sarah and good morning, everyone. During the third quarter and as
we speak, we continue to see
an evolution
of the
macroeconomic outlook
with opinions,
forecasts and
markets changing
at a
very rapid
pace.
In addition, we
witnessed an
even further deterioration
of the geopolitical
landscape as a
result of tragic
events
in the Middle East. Our
thoughts are with those who
are suffering and have been
impacted by this violence,
as
well as our affected employees.
While we
have been
very busy
executing on
our integration
plans, our
top priority
is always
to stay
close to
clients, helping them protect their assets
and position their portfolios and businesses for future
opportunities.
Our wealth
management clients
remain cautious
and defensively
positioned.
And while
some of
our institutional
clients are taking advantage of short-term opportunities,
many still remain on the sidelines.
Our
consistent
dedication
continues
to
be
rewarded
by
their
confidence
and
trust
in
UBS.
This
was
demonstrated by
another
quarter
of
strong
flows
across
GWM
and
P&C.
In
the
third
quarter,
the
first
full
quarter since the acquisition, we made strong progress and delivered underlying
profitability.
With respect to the
integration of Credit Suisse,
we continue to be encouraged
by our achievements to
date in
both our planning and execution.
In terms of
the lessons learned from
the events in
March, we welcome the
recent reports issued
by the Basel
Committee
on
Banking
Supervision,
the
Financial
Stability
Board
and
the
Swiss
Expert
Group
on
Banking
Stability.
Their findings
confirmed our
view that
the crisis
was not
a
result
of
insufficient
capital or
liquidity
requirements.
Rather,
the reports
emphasized sustainable
business models,
risk-adjusted profitability,
and importantly,
the
critical role
of robust
risk management
cultures and
effective governance.
We take
comfort in
these conclusions,
as they
have been
and remain
core principles of
UBS. Today,
we are
positioning UBS to
be an
even stronger
and safer global financial institution. It is for this reason that we remain confident the acquisition will allow us
to deliver significant
value for all
of our stakeholders,
notwithstanding potential
macroeconomic or geopolitical
challenges.
2
Slide 4 – Strong progress amid challenging market conditions
Briefly summarizing
our results
this quarter. Our
strong underlying
performance
was driven
by positive
operating
leverage
at
the
Group
level.
GWM,
P&C
and
Asset
Management
all
delivered
underlying
PBT
growth.
IB
performance was
impacted by
market conditions
that were unfavorable
to our business
model and
investments
we expect to be accretive in future quarters.
Our capital
position remained
strong with
a CET1
ratio of
14.4% and
total loss-absorbing
capacity of
nearly
200 billion. We achieved
this result while
incurring 2 billion in integration-related
expenses and making good
progress running down non-core assets.
Despite our reported loss
in the quarter, we incurred over 500
million in tax expense,
and paid over 200
million
in cash taxes in Switzerland.
Slide 5 – Delivering on integration priorities
Our confidence
in the
ability to
successfully integrate
Credit
Suisse and
create substantial
long-term value
is
supported by the strong progress we made in the third quarter.
We have now stabilized Credit Suisse and continued to grow our franchise through new client
acquisition and
share-of-wallet gains.
In addition,
our client
retention and
win-back strategy
is working.
Net new
money in
GWM was 22 billion and our strong deposit momentum
continued through the quarter.
The 33 billion in net
new deposits across GWM
and P&C also supported
our ability to reduce quarterly
funding
costs by 450 million through
the repayment of the Public
Liquidity Backstop and the
ELA+
that we announced
in August.
We are pleased to see
strong demand for UBS
debt in the
wholesale markets with
transactions priced at
similar
levels to where UBS paper stood before the rescue of Credit Suisse.
We have finalized the perimeter of Non-core and Legacy,
and our efforts to actively unwind positions resulted
in a capital release of around 1 billion.
Lastly,
we continued to
execute our plans to
reduce costs in
Non-core and Legacy,
restructure Credit
Suisse’s
Investment Bank and remove duplications across our operations.
We have already delivered around 3 billion in
annualized exit-rate gross cost savings. We expect to make
further progress in the fourth quarter.
Slide 6 - Client trust and confidence demonstrated
by strong flows in GWM and P&C
Slide 6
summarizes well
how quickly
we have
stabilized Credit
Suisse, and
the confidence
of clients
in UBS.
Credit Suisse
Wealth Management’s quarterly
net new money
has now
turned positive for
the first time
in a
year and a half,
with 3 billion in
the third quarter.
UBS Wealth Management’s 18
billion in net new
money is
the second highest third-quarter result in over a decade.
In addition, it
was satisfying to
see that our
efforts to win
back client assets
resulted in 22
billion in net
new
deposits from Credit Suisse clients across GWM and P&C.
Following our decision to
integrate Credit Suisse Schweiz,
we reached out to our clients
to re-assure them that
we remain committed
to delivering
the best
capabilities of
both institutions.
In addition, we
reiterated that
their
credit limits across both banks will remain in place.
To
date, client
reactions have
been broadly
constructive and
net new
deposits in
P&C were
positive in
both
Personal
and Corporate
banking client
segments. We
are
particularly pleased
that this
was also
the case
in
September, the month following our decision to integrate both franchises.
3
Slide 7 – Accelerating the run-down of Non-core and
Legacy assets
In Non-core and Legacy,
we also made strong progress this quarter.
80% of the sequential reduction in NCL’s
credit
and
market
risk
risk
weighted
assets
was
driven
by
actively
running down
positions,
executed above
marks. Non-operational risk weighted assets
have now been
reduced by nearly one-third
since 1Q23 and the
expected natural run-off profile has improved by 3 billion.
While we
have some
credit risk
exposure in
certain local
emerging markets
and other
more complicated
bilateral
positions
that
resulted
in
CLEs
this
quarter,
the
key
risks
across
the
portfolio
are
well
understood,
actively
managed and in most cases, well hedged.
The
majority
of
our
credit
risk
exposure
is
with
high-quality
borrowers.
Over
75%
of
the
exposure
is
rated
investment grade.
This provides
us with
the comfort
to continue
to pursue
our strategy
to accelerate
the disposal
of
these
assets
in
a
way
that
optimizes
value
for
our
shareholders,
while
also
protecting
our
clients
and
counterparties.
The finalized
perimeter of
Non-core and
Legacy contains
30 billion
in operational
risk weighted
assets. As
a
function of the natural decay across the portfolio, we expect
a reduction of around 50% by the
end of 2026.
Todd
will take you through this in more detail.
Slide 8 – Integration planning and execution well
underway
Returning to the integration, let me reiterate that
the complexity is not just from
managing two G-SIFI banks.
Our
immediate
priority
since
the
transaction
was
announced
and
closed
had
to
be
on
stabilizing
and
restructuring Credit Suisse. This will continue to be the case
until the early part of 2024.
At the same
time, we are
executing on our integration
plans at pace, and
on the left
side of slide
8, you can
see
a
selection
of
our
recent
achievements.
Notably,
we
have
established
management responsibilities
and
operating models across business divisions and
legal entities, including in our Swiss franchise.
You
can also see some of our key priorities through the end of this year and beyond. This includes the merger
of
our
significant
legal
entities,
client
migrations
across
all
of
our
business
divisions
and
executing
on
our
technology decommissioning plans.
Last but
not least,
we are
also working
toward finalizing
our 3-year
strategic plan,
which we
will present
in
early February.
4
Slide 9 – Working towards ~15% RoCET1
As we continue
to progress our plan,
the main focus
has been on
delivering synergies for
the combined Group.
We remain confident that the
2026 goals that we presented last
quarter are achievable. But, as |
said then, it
will not be a straight-line journey.
We are pleased that the first phase of gross cost savings has already been executed in 2023. But I am sure we
all
appreciate
the
significant costs
associated with
running and
combining two
G-SIFIs,
one
of
which is
still
structurally unprofitable.
From an operational standpoint of
view, it
is clear that 2024 will
be a pivotal year.
Completing the merger of
our significant legal entities before the end of next year is a critical step to enable us to unlock the next phase
of our cost, capital and funding synergies,
which we expect to realize in 2025 and 2026.
Our enhanced scale, leading client franchises and increased future earnings power will position us for growth.
Disciplined execution
will continue
to be an
important driver
for our
performance and
we are on
track to
deliver
on our plans.
We are optimistic
about our future
as we build
an even stronger
and safer
version of the
UBS that
was called
upon to
stabilize the
financial system
in March, and
one that
all of
our key
stakeholders can
be proud
of.
With that, I hand over to Todd.
5
Todd
Tuckner
Slide 11 – Update on reporting charges
Thank you and good morning everyone. As
Sergio highlighted, we are executing on
our plans at pace. In
our
first
full
quarter
since
the
Credit
Suisse
acquisition, we’ve
delivered
underlying
profitability
and
maintained
strong client momentum with impressive net new money inflows in Global Wealth Management and net new
deposit growth in our Swiss franchise.
We
also made
substantial progress
in de-risking
our Non-core
and Legacy
portfolio, reinforcing
our balance
sheet for all seasons.
Before I move on to discussing details of our financial performance, let me describe the reporting changes we
implemented this quarter and the ones we
expect to introduce soon.
Today,
for
the
first
time
we’re
presenting
the
results
of
our
performance
segments
on
a
combined
basis,
reflecting
the
way we’re
managing our
businesses and
engaging with
clients. In
addition
to Global
Wealth
Management,
Personal
&
Corporate
Banking,
Asset
Management
and
the
Investment
Bank,
we
are
now
separately
reporting
Non-Core
and
Legacy
as
well
as
Group
Items,
all
of
which
reflect
the
combined
performance of UBS and Credit Suisse under IFRS and
in US dollars.
As
I
said
during
the
second
quarter
earnings call,
our
aim
is
to
be
clear
and
forthcoming in
explaining the
financial reporting
of this
complex transaction.
Therefore,
we’ve introduced
underlying performance
metrics
that primarily strip out the PPA
-related pull-to-par effects from revenues
in our core businesses and
adjust for
integration-related expenses across all performance segments.
Regarding the pull-to-par
effects in NCL,
in the quarter
we reclassified most
of the positions
that Credit Suisse’s
Investment Bank and
Capital Release Unit
historically accounted for
on an
accrual basis to
fair value
through
P&L, as those positions in NCL are now held for sale. As a reminder, those positions gave rise to the 3.1 billion
in future NCL pull-to-par revenues that we flagged last quarter.
Given that NCL generates revenues in various
ways, whether from early
unwinds of positions and other
disposals, mark-to-market on its fair
value book, or
from pull-to-par effects,
we don’t distinguish
among the various
accounting classification types. Accordingly,
in the quarter
and going forward,
all sources of
NCL income,
gain or
loss will be
treated as part
of its underlying
performance.
As
last
quarter’s
disclosed IFRS
results
reflect
only
one
month
of
Credit
Suisse’s operating
performance, to
improve comparability, we’ve prepared estimated underlying results that
reflect all three months of the second
quarter. As I go
through my
remarks, unless
otherwise stated,
I will
compare our
underlying third
quarter results
sequentially to this
estimated performance in
the prior quarter.
We’ll focus
on sequential developments
until
the third quarter of 2024, when we’ll resume
year-over-year commentary.
Now, on to
our planned changes. In the fourth quarter we will expand
our Global Wealth Management asset
flows disclosure and enhance comparability
with US peers. We
will report net new
money plus dividends and
interest, as well as disclose net new fee generating assets for the combined franchise. We intend to introduce
a growth
target for
net new
money,
plus dividends
and interest,
when we
present our
integration KPIs
and
targets as part of our fourth quarter results early next
year.
Additionally, starting from
the first
quarter of
2024, we
expect to
push out
to our
business divisions
substantially
all balance sheet and P&L
items that were previously retained centrally
in Group Items. The only exceptions
will
be for group
items that are
not directly
attributable to divisional activities,
including deferred tax
assets, cash
flow hedges, own
credit and
their associated P&L
effects. Our
business division equity
attribution framework
will also
reflect these
changes
whereby the
average levels
of equity
across the
business divisions
will more
closely
align to our current Group capital targets.
6
Slide 12 – 3Q23 underlying PBT of 0.8bn, higher
revenues and lower costs QoQ
Moving on
to our
financial performance
on Slide
- The
quarterly profit
before tax
was 844
million, a
1.4
billion
increase
from
the
second
quarter as
we
delivered
strong
positive
operating
leverage
with
0.6
billion
higher revenues and 0.5 billion lower operating expenses.
Additionally, CLE
declined by 0.4 billion sequentially to 0.3 billion,
which mainly related to Credit
Suisse loans
within P&C and NCL,
which I cover later in
more detail. By comparison,
CLE in the second
quarter of 0.7 billion
included more
than 0.5
billion of
charges primarily
related to
the take-on
recognition of
ECL allowances
on
Credit Suisse’s lending portfolios.
On a
reported basis,
the third
quarter net
loss was
785 million,
as 526
million in
tax expense
arising in
profitable
entities, could not
be offset by tax
benefits from losses
primarily generated by
certain Credit Suisse
subsidiaries.
We expect our
effective tax rate to
remain elevated until
we merge and restructure
our most significant legal
entities. After that time, the effective tax rate should
gradually return to a level below 25%,
absent the effects
of any remeasurement of deferred tax assets.
Slide 13 – 3Q23 underlying total revenues 10.7bn, up
6% QoQ
Moving to Slide 13. Revenues
increased by 6% this quarter
to 10.7 billion driven by
lower funding costs within
Group
Items and
gains in
Non-Core
and Legacy
as the
team accelerated
the unwind
of certain
positions at
attractive prices relative to book values.
Revenues in
Group Items
increased sequentially
primarily due
to the
reduction of
around 450
million in
centrally-
held funding
costs from
the Credit
Suisse-related liquidity
measures that
were repaid and
returned in
the middle
of the third quarter. For the fourth quarter we expect an additional
100 million benefit from these actions.
It is
worth noting that the cost of replacement funding
is being absorbed by the core businesses
and is reflected in
their sequential NII performance and guidance
this quarter.
Total
revenues reached 11.7 billion, including 958 million that we’ve stripped out of underlying revenues. This
amount
consisted
of
764
million
in
pull-to-par
effects
as
well
as
194
million
of
NII
in
our
core
businesses
benefitting from the
merger date elimination
of the unrealized
loss balance
associated with
Credit Suisse’s cash
flow hedge program.
Slide 14 – Pull to par overview and revenue recognition
On Slide
14 we
show the
details of
pull-to-par and
similar effects
that we
expect to
recognize in
future quarters.
The pull-to-par starting balance as of transaction close was 9.3 billion, excluding the 3.1 billion reclassification
in NCL that I described earlier. Considering the pull-to-par accretion of 1.1 billion recognized since the merger
date, including 0.8 billion
this quarter, the remaining balance that will
accrete into income over
future quarters
is expected to be around 8.2 billion.
We expect the
majority of this balance
to accrete into
income by the
end of 2026,
barring the impact of
any
early
unwinds, with
500
million
expected next
quarter.
We
also
expect
to
recognize
around
900
million of
additional NII in GWM
and P&C relating to
the eliminated cash flow hedge
item I mentioned a
few moments
ago, with 150 million expected in 4Q.
As a
reminder,
these effects
are stripped
out of
our underlying
revenues with
about half
being CET1
capital
accretive. I would
also point out
that we continue
to expect total
pull-to-par revenues, including
the reclassified
NCL and
post-2026 recognized portions,
to broadly
offset the
costs to
achieve the greater
than 10
billion in
gross savings we
described last
quarter. Having said this,
like in the
third quarter, we expect there
will be timing
mismatches in
the recognition
of these
reported revenues and
expenses, resulting
in headwinds
to our reported
results, particularly in the fourth quarter and throughout
2024.
7
Slide 15 – 3Q23 underlying operating expenses 9.6bn,
down 5% QoQ
Moving to Slide 15. Operating expenses for the
Group decreased to 9.6
billion, down 5% as our cost
savings
initiatives take effect, partially offset by reinvestments to help grow our
core businesses.
Progress
on
our
restructuring
actions
led
to
2
billion
in
integration-related
expenses.
Roughly
half
of
these
expenses was related
to personnel costs,
including severance payments, salaries of
employees fully dedicated
to integration matters, and
the costs of
retaining key personnel. The
other half was related
to non-personnel
matters, including
real estate
impairments and
depreciation, onerous
contract charges,
and consulting
and legal
fees.
For the fourth
quarter, we expect integration-related
expenses in excess
of 1 billion,
although certain
additional
costs to achieve may arise if we see opportunities
to accelerate savings.
While we
manage our
integration to
achieve overall
cost reductions without
specific headcount
targets, I would
note that our combined workforce
fell by over 4
thousand in the quarter,
bringing year-to-date reductions to
13 thousand, or down 9% versus the workforce of both banks as of the end of 2022. Across our cost-savings
initiatives, we’ve achieved around 3 billion
to date in gross run-rate
cost saves with further progress
expected
in the fourth quarter.
Slide 16 – Diversifying sources of funding and maintaining
a strong liquidity position
Turning to Slide 16.
In the quarter
we maintained a
strong capital position
with around 200
billion of TLAC
and
a CET1 capital
ratio of
14.4% mainly
as we
reduced RWA from
the active
run-down in
our NCL
portfolio, which
offset reductions in
our CET1 capital in the
quarter.
Our CET1 leverage ratio increased
to 4.9% at the
end of
the quarter.
As we previously
guided, we
expect to
maintain a
CET1 capital ratio
of around 14%
throughout the
integration
timeline, even if our reported performance over the coming quarters remains affected by the costs of winding
down the NCL unit and the work needed to
achieve cost synergies in our core businesses.
During the quarter we issued
4.5 billion of US
dollar TLAC attracting very strong
demand, and pricing at pre-
acquisition spreads,
in a
clear sign
of fixed
income investor
confidence in
our name.
To
further diversify
our
sources
of funding,
we successfully
placed 3
billion in
SEC-registered
OpCo and,
just after
the quarter,
820
million Swiss francs in UBS’s inaugural Swiss
covered bond issue, both attractively priced.
Regarding liquidity, we maintained a prudent profile in the quarter with an LCR of nearly 200%, supported
by
33
billion
in
total
deposit
inflows.
I
would
note
that
these
strong
deposit
inflows
across
Global
Wealth
Management and Personal & Corporate Banking
increased our overall deposit coverage ratio.
Going forward, we expect
to continue to operate
with a prudent LCR
to comply with the
revisions to the Swiss
Liquidity Ordinance that will come into effect on January
1, 2024.
Regarding
the Swiss
National Bank’s
recently announced
changes to
its
minimum reserve
requirements
and
sight deposit remuneration policies that take effect next month, we expect an annualized
reduction of around
80 million Swiss francs to our NII, of which
two-thirds will impact P&C and one-third GWM.
8
Slide 17 – Global Wealth Management
Turning
to
the
performance
in
our
businesses,
beginning
on
slide
17.
In
Global
Wealth
Management
we
continued strong momentum with 22 billion in net new money inflows across all
regions. We saw particularly
strong inflows in both APAC and EMEA, with
13 and 8 billion
in net new money, respectively. Importantly,
our
Credit Suisse Wealth
Management business
attracted quarterly
net inflows
for the
first time
since the
beginning
of 2022. In
the quarter,
we also attracted 25
billion of net new
deposits, including 17 billion from
the Credit
Suisse wealth side.
These impressive flows
are a true testament
to the trust
our clients continue
to place in us.
They also reflect the
success of our clear and decisive
win-back, retention, and client-acquisition
actions, as well as intensified client
engagement levels
since the
deal’s completion.
We
expect to
further build
on this
momentum as
the value
proposition of
the combined
firm becomes
more tangible
to our
clients. For
instance, all
of our
clients now
have
access to the UBS House View from our CIO,
and our wealth management product and solution offerings are
being unified and aligned across the platforms.
As mentioned, from next quarter
we will report net new
money plus dividends and
interest, as well as net new
fee generating
assets for
the combined
franchise. In
the third
quarter,
inflows based
on this
new definition
were 39
billion, and net
new fee generating
assets in solely
the UBS portion
of our wealth
business were 21
billion, with positive flows across all regions.
Moving on
to GWM’s
P&L. Profit before
tax was
1.1 billion,
over 40%
higher sequentially, driven by
a reduction
in costs
and credit
loss expenses
with roughly
flat revenues.
Excluding the
impact of
CLE,
which included
a
significant acquisition-related ECL charge last
quarter,
underlying profit before
tax increased by around
20%,
supported by lower underlying operating expenses.
This quarter
GWM revenues
of 5.5
billion were
broadly flat
as increases
in recurring
fees were
offset by
a decline
in
NII.
Combined
net
interest
income
was
down
3%,
on
an
underlying
basis
and
excluding
FX,
reflecting
continued deposit
mix effects
due to rotation
into higher-yielding
deposits, and
ongoing deleveraging.
This was
partially offset by sequentially higher deposit balances that serve to close
the funding gap in the business and
strengthen
the
structural
profile
of
our
balance
sheet.
For
the
fourth
quarter
we
expect
a
mid-single-digit
percentage decline in NII mainly from continuing deposit
mix shifts.
Credit loss expenses in the quarter across GWM were 2 million.
Operating expenses declined by 0.2 billion
to 4.4 billion mainly driven by
lower personnel expenses as reduced
headcount levels, which we expect to continue
sequentially, began to benefit our underlying earnings.
Although
it’s
early
days
in
terms
of
synergy
realization
in
GWM,
we
are
already
seeing
progress
from
our
integration
efforts.
The
division’s
underlying
cost/income
ratio
in
the
third
quarter
dropped
by
around
3
percentage points to 80%.
Slide 18 – Personal & Corporate Banking (CHF)
Turning
to Personal & Corporate
Banking on slide 18.
Profit before
tax increased by
0.1 billion to 773
million
Swiss
francs,
mainly driven
by
a
decrease
in
credit
loss
expenses.
Excluding
CLE,
P&C’s
PBT
was
up
slightly
quarter on quarter.
9
Revenues increased to 2.2 billion.
With the announcement of the Swiss integration at
the end of August, the
business is
highly focused
on client
engagement and
deposit win-back.
Early indications
are
encouraging as
evidenced by
the stability
of the
revenue line,
the resilience
of business
volume and
the commencement
of
deposit returns.
Net interest income decreased by 4%
despite the narrowing funding
gap from net new deposit inflows,
which
mainly came
from our
corporate clients.
A primary
driver
of the
sequential decline
this quarter
was the
additional
cost of restoring the structural funding profile of the combined
business to UBS’s NSFR standards.
For the fourth quarter,
we expect a low single digit
percentage decline in NII mainly due
to rotation to higher
yielding deposits.
Credit loss expense in
the quarter was 154
million Swiss francs almost exclusively
from two factors
related to
Credit Suisse’s
Swiss Bank.
First, we
recognized CLE
on [Edit:
for credit-impaired]
loans, mainly
to corporate
counterparties that were already impaired on the merger date and deteriorated further this quarter, as well as
newly defaulted
positions. Second,
we moved
to Stage
2, and
provisioned in
line with
UBS’s coverage
ratio
standards, all loans including those as of the merger date on Credit
Suisse’s watchlist as well as those lending
exposures that experienced a significant increase in credit risk during
the third quarter.
Underlying
operating
expenses
were
roughly
unchanged
at
1.2
billion
on
lower
personnel
and
litigation
expenses, with the underlying cost/income
ratio down quarter on quarter to 57%.
Slide 19 – Asset Management
Moving to slide 19. In
Asset Management the underlying profit before
tax increased to 156 million
on higher
revenues and lower costs.
Revenues were slightly higher
at 755 million, with
increases in net management
fees
driven by market performance and FX, and higher
performance fees from our hedge fund businesses.
Operating expenses decreased to 599 million mainly
due to lower personnel expenses.
Net new money in the quarter
was negative 1 billion driven by
Credit Suisse outflows, which continue to
taper
since the
acquisition, with inflows
expected to
gradually return
from proactive
client engagement. It’s
worth
noting
that
the
UBS
side
of
the
business
attracted
net
new
money
inflows
this
quarter
in
a
challenging
environment for
asset managers.
We saw strong
demand for
our Money
Market, SMA
and Real Estate
& Private
Markets solutions, partly offset by client asset allocation shifts away from China, Equities, and Hedge Funds in
the current market dynamic.
Net new money excluding money markets
and associates was negative 8.3 billion.
Slide 20 – Investment Bank
Turning
to the
Investment Bank
performance on slide
- Since
the UBS
IB has
taken on
only select
parts of
Credit Suisse’s investment bank and the latter saw little activity in the second quarter,
we compare the results
of the combined IB with standalone performance
in the prior year’s third quarter.
We will continue to offer year-over-year comparisons to standalone UBS IB performance in the quarters ahead
while also providing commentary
on sequential developments
until the third quarter
of 2024, as with
the other
business divisions.
The operating
loss of
116 million
was a
result of
additional costs
related to
the retained
portion of
Credit Suisse’s
Investment Bank, which
was only partially
offset by standalone
profit before tax
in UBS IB,
as market conditions
remain challenging for our business model.
10
Underlying revenues, which exclude
251 million of pull-to-par
accretion and other
effects, declined 6%
year-
over-year to 1.9 billion
amid muted client activity due to ongoing concerns around terminal interest
rates and
geopolitical events.
Volatility
across
asset classes
declined significantly
from a
year ago
and global
fee pools
remained depressed.
Against this
backdrop, Global
Banking revenues
increased 36%
with particular
strength in
leveraged capital
markets
and
strong
performance
in
EMEA.
Advisory
outperformed
the
global
fee
pool,
and
was
further
supported by revenues from the heritage Credit Suisse franchise.
Global Markets
revenues declined
15% from a
very strong
third quarter, reflecting lower
revenues across
macro
products
and equity
derivatives. This
was partly
offset by
growth in
Financing supported
by increased
client
balances.
Overall, revenues generated from the retained portion of Credit Suisse’s investment
bank were 113 [edit: 131]
million this quarter, primarily in Advisory as well as Derivatives and Solutions.
Operating expenses rose 27%, predominantly from additional personnel costs related to the retained portions
of Credit Suisse’s Investment Bank, as well as higher
technology costs and FX.
As we manage the Investment Bank integration, we remain disciplined in
our resource management. RWAs at
23% of the Group’s resources excluding NCL were roughly unchanged sequentially.
Looking ahead, as the majority
of the onboarding of our colleagues
and positions to UBS IB
systems is planned
for completion
by the
end of
the year,
we expect
revenues
to ramp
up over
the course
of 2024.
Given this
timing,
in
addition
to
current
market
conditions
and
seasonality,
we
expect
continued
pressure
on
our
underlying profitability in the fourth quarter.
Slide 21 – Non-core and Legacy
Moving
to
Non-Core
and
Legacy
on
Slide
21.
Excluding
integration-related
expenses,
NCL
generated
an
underlying operating loss of 1 billion.
Quarterly revenues of 350 million consisted mainly of gains from the early unwind
of loan commitments while
the portion of
the NCL portfolio
that remains on
the accrual method
of accounting was
left broadly unchanged
this quarter given recovery expectations on the underlying
lending positions.
Credit loss expense
was 125
million. Additional
provisions of
71 million
reflect application
of the
same extended
credit
watchlist approach
I described
earlier in
the context
of P&C.
We
also saw
54 million
of charges
from
Stage 3 and purchased credit-impaired loans that deteriorated further
in the quarter.
Underlying operating expenses
reached 1.2 billion, split roughly
equally between personnel
and non-personnel
costs. Integration-related
expenses of
918
million consisted
of
onerous
contract charges,
real
estate-related
expenses, and personnel costs linked to headcount
reductions and retention.
For the fourth
quarter,
we expect the
underlying cost base in
Non-Core and Legacy
to decrease further
from
additional staff reductions whose costs are directly housed within, or allocated
to, NCL.
As Sergio mentioned, in
the quarter we took
decisive actions to reduce
RWAs. 5 of the total 6
billion reduction
resulted from active de-risking of exposures across the array of NCL portfolios. LRD was reduced by 52 billion,
including 15 billion
resulting from lower HQLA
requirements and 12 billion
from the accounting
reclassification
of loan commitments from accrual to fair value.
11
During the
quarter,
we completed
the initial
impact assessment
on our
operational risk
RWA
from the
final
Basel 3 standard, which comes into effect on January 1, 2025. Based on this initial
study, we expect Group op
risk RWA to remain broadly unchanged at the current level of 145 billion.
We also
determined on
the basis of
our impact
assessment initial levels
of RWA
to apportion
to each
of our
business divisions,
including NCL.
The 30
billion of
operational risk
RWA assigned
to NCL
this quarter
is expected
to diminish over time as a function of two considerations: the run-down of the NCL portfolio and the removal
of certain legacy litigation matters given the
lapse of time. On the basis of natural roll-off in both contexts,
we
expect operational risk RWA in NCL to decrease to around 14 billion by the
end of 2026.
As a reminder, we continue to expect a roughly 5% increase from day-1 effects in 2025 from other final Basel
3 considerations, mainly FRTB.
Slide 22 – On track to deliver on our integration
goals
As we look ahead
to the fourth quarter,
we expect many of the
drivers of underlying profitability to continue
to progress.
In particular, we
expect underlying
operating
expenses to
decline sequentially
as our
core businesses
realize incremental synergies,
and NCL remains
focused on actively
running down its
portfolio to release capital
and accelerate cost saves.
In addition
to the
NII expectations
that I
described earlier,
transactional activity
may be
affected by
seasonal
factors as well as client sentiment in response to the
geopolitical landscape.
Despite these elements, we are executing on our integration plans at pace and remain on track to achieve our
goals of around a 15% return on CET1 capital and a
cost/income ratio of less than 70% by the end
of 2026.
With that, let’s open for questions.
12
Analyst Q&A (CEO
and CFO)
Stefan Stalmann, Autonomous Research
Yes. Good morning, gentlemen. Thank you very much for the presentation. I have
two questions and they
may be linked. The first regarding the outstanding SNB
funding. I don't think there's any update in the
disclosure material on where the number has moved to.
I think the last disclosed number was CHF 38
billion
at the end of August. Could you provide an update
here?
And possibly related to this, it looks to me looking at
SNB data that there has not been a lot further reduction
of SNB funding after August, in September. Is that a good interpretation of the data? And is
there any
connection here between your management of the
SNB funding and the new Liquidity Ordinance
that has
come into play – that will come into place
in January? And is it possible for you to
give us a guidance on how
your liquidity ratios will look like on the 1st of
January under this new Liquidity Ordinance in Switzerland,
please? Thank you.
Todd
Tuckner
Hi, Stefan. Thanks for your questions. So,
in terms of the outstanding SNB funding, no,
it's – we still have the
– that funding levels are still unchanged at this
stage. We are working through our business plans and as well
as our funding plans. And we'll consider
the ability to repay some or all of that over the course
of the coming
months, but your read was correct.
In connection with that funding and the Liq.
Ordinance, no. I'd say there's no specific connection with
that.
And we're not maintaining that funding, particularly
in respect of satisfying the Liquidity Ordinance per se.
That said, the LCR guidance that you're looking for, as we say, will remain prudent. So you can expect it to
remain at levels not terribly far away from where we finished 3Q
at.
Stefan Stalmann, Autonomous Research
Great that’s very helpful, thank you.
Giulia Miotto, Morgan Stanley
Yes. Hi. Good morning. Two
questions from me. The first one on capital
distribution. I know it's very early and
I guess you will comment on
Q4, but what are the stepping stones
that we should look out for
before you can
resume a buyback? That's my first question.
And then, the second question is with respect to costs. In the quarter, there was an excellent delivery on costs
and the USD 3 billion target by year
end has already been achieved. So basically,
where do we go from
here?
Can we assume that this steady path of cost saves
can continue? Or will there kind of be a pause until there
is
the legal merger because you have already basically extracted as much as you could of
the low hanging fruit?
Thank you.
Sergio P.
Ermotti
Okay. Thank you. So in respect of the capital distribution plan or capital return plans, as you
pointed out,
you're going to have to be patient. You know, is for the time being I just can reiterate that we are still looking
to have a progressive cash dividend policy that will be implemented.
And for the rest, you need to have –
what you need to see is the visibility with
the plan. So we are finalizing the three-year plan and that will allow
us to really calibrate capital returns.
13
I just want to reiterate, I still believe at this stage, although
the plan is not finished, that capital returns
and
share buybacks is not a matter of years. In my point of
view, it could be a matter of quarters. But without
having the final plan, it's difficult to really make a final
statement. But that will be addressed in February.
And somehow, it's linked to your second question because, of
course, I'm not so sure, I would define the
progress we've made so far as low hanging fruit. But I
think that it takes efforts and time to go through this.
I
do believe that we still have costs that can be
taken out during 2024, regardless of what you are pointing out
being the critical issue is the legal entity merger. The legal entity merger is the triggering
point that allow us
to go to the next level of cost reduction and synergy
realizations from an operational standpoint of view, but
also from an IT stand point of view.
So 2024, as Todd
mentioned, is the – and I also remarked, is
a pivotal year,
is probably the one time in which
we're going to incur the most costs in order to achieve the synergies that we'll achieve in 2025 and 2026. So,
you see how the two questions are somehow linked.
Giulia Miotto, Morgan Stanley
Thank you.
Andrew Coombs, Citigroup
Good morning. Two questions from me, please. Firstly, on the GWM net interest income trajectory. Thank
you for the commentary in your prepared remarks. I think you said after
a 3% decline in Q3, you expected
mid-single-digit percentage decline in Q4 and that
there's an ongoing deposit mix shift. So that
seems to be
accelerating rather than decelerating. So can
you give us any indication of how much
longer you think that
trend could continue for? Do you think now that
we're at peak rates, if anything, that should slow
as we go
into 2024? And also, if there's any implications from your
broader deposit pricing that's also influencing that
sequential NII decline. That's the first
question.
Second question, there's
been quite a
lot of media
commentary over the past
week ahead of
the Too
Big To
Fail
review
coming
out
in
spring
next
year.
I
think
there's
been
some
explicit
discussion
around
potentially
introducing more exit fees or more notice periods around deposits. So, anything
you could say with regards to
that and also what that means for your competitive
positioning versus international peers?
Thank you.
Todd
Tuckner
Yeah. Thanks, Andrew.
On the first in terms of GWM NII trajectory, I think you captured it right in terms of
guidance around a mid-single digit decline owing to
deposit mix shifts and whether that
seems like an
acceleration. I'd comment that I think what we're seeing
is a bit of a broadening of that dynamic more across
the globe.
We saw in most of 2023 that dynamic being very significantly
driven by moves from sweep deposits into
higher yielding deposits in the US. And we
saw less of that in Europe and APAC, as well as in Switzerland.
And so while we're seeing the US taper now, both in the current quarter and as we
look ahead, we're seeing
a bit of an expansion of that dynamic in other
parts of the globe, and that's what's
sort of driving that.
As I look out into 2024, we're doing
that work now. We'll come back with a view during
February with a view
on full year 2024. I would just conclude on the point saying, no,
I don't see pricing having an impact. I mean,
this is just a
response to the current
rate environment as clients
are undergoing cash sorting
across our client
base.
14
Sergio P.
Ermotti
So in respect of what you mentioned and changes
in the law or regulations around liquidity. I think I can only
say that it's pretty difficult to track all the rumors, speculations and
ideas that are coming up, almost daily.
On the Swiss media, I think that I can only tell you that, that at this stage what stands
is that even the Finance
Minister took an official stance
on the matter. I mean, those are speculations. I don't
believe this is going to
be
part of the package. I think that - I'm convinced that Switzerland will keep its standards in terms of allowing
–
or responding to the crisis in March, not only the one in Switzerland, but broadly speaking,
with following the
recommendation
that
it
will
be
set
by
the
FSB
and
other
bodies.
And
in
that
sense,
I
don't
see
us
being
particularly disadvantaged
compared to
any other
jurisdictions in
terms of
a Liquidity
Ordinance. So,
I guess
that we will
follow up
and I
think it's
going to
still take
months and
months before
the full
analysis of what
happened will translate into concrete actions.
Adam Terelak, Mediobanca
Good morning. Thanks for the
questions. I had a one big picture question on revenues and
then a follow-up
on the operational risk RWA. Big picture, your revenues at the minute are annualizing
to low-40 billions or so.
Clearly, your target has a number,
which is probably USD 50 billion-plus. Just want
to understand how you
see the revenue bridge from here through to 2027 and what the key moving
parts should be, particularly in
the context of some of your GWM trends, which
at the minute seem to be down before we go back
up.
And then, secondly, on operational risk, I
just want to understand
some of the assumptions
that are going into
your Basel IV
guidance there. Clearly there's
some uncertainty around ILM.
There's a bit
of uncertainty about
what losses
to use
in
that standardized
calculation. So
what losses
from
the Credit
Suisse
business are
you
having to
carry forward
and how
does that
impact your
operational risk
RWA? And then,
finally, can I just
clarify
on the Basel 3.1 finalization guidance, is that
5% ex. any moves in operational risk? Thank
you.
Sergio P.
Ermotti
Thank you, Adam. So in terms of revenues, I'm not
so sure we ever indicated that we have a USD
50 billion
plus revenue. I don't know where this figure is coming from. What
I remember saying back in August is that
our targets, our ambitions for 2026 are not based on
blue sky scenarios on revenues. So, if anything, I guided
to the contrary of that.
So we are definitely focused on costs and we are definitely
also focusing on the denominator. So we need to
basically focus on managing and utilizing in a better
way the resources and the risk-weighted assets that we
have right now.
I
have
to
go
back
to
the critical
point.
Mission number
one
we have
had
in
the last
six
months and
in
the
foreseeable future is to restructure Credit Suisse,
okay? And then we're going
to talk about synergies
and then
we're going
to talk
about growth.
But, before
we talk
about growth
of the
top line,
we need
to restructure
and reset the basis. And in that
sense, believe me, we are not
counting on blue sky scenarios
and that figure is
not really our figure.
Adam Terelak, Mediobanca
Can I ask for a better landing point then?
Sergio P.
Ermotti
Well, the landing point you will see it in February.
15
Adam Terelak, Mediobanca
Okay. Thank you.
Todd
Tuckner
Adam, on your second question in terms of
op risk RWA and modeling, as I mentioned, we did an initial
impact assessment. It was quite dynamic.
We've had only initial discussions with our regulator at this
point in
time, naturally ahead of the formal introduction of Basel
III final for op risk RWA, there'll be much more
extensive interactions with the regulator to agree on the
particulars around the ILM, as you say.
We made certain modeled assumptions for now, as well as the loss history. We made certain assumptions
about the loss history and the roll off of certain legacy
matters. So, it was a thoughtful analysis, a
good initial
view, but it's going to be one that requires more work and more engagement with our regulator over the
coming months.
On the
5%, actually,
no, it's not
ex-op risk, it's
inclusive. But given
that, op
risk we're saying,
as I said
in my
remarks, we see that as broadly unchanged from now. The maths are the same either way.
Adam Terelak, Mediobanca
Perfect. Thank you very much.
Flora Bocahut, Jefferies
Yes. Good morning. I'd like to talk about the net new money, especially at CS this quarter, because if I look
at extrapolating the quarterly changes in net
new money at CS that we've seen over the
past two quarters, it
seems to point to a run rate where you gain USD 20
to USD 30 billion of net new money per quarter. But
then, if I try and reconcile just the month of September
from what you had disclosed with Q2, it looks like
there's been a slowdown actually in net new money
at CS with just USD 2 billion in Wealth this month.
So
what should I consider as a more normalized level from
here? Is it going to be still the pace we saw over
quarterly basis or there is a slowdown because the environment
is tougher. You
probably have visibility there
with what happened in October.
And the second question is actually following
up on this. I know you are going
to provide us with the strategic
update at
the full
year, but any hint
as to
what kind
of assumptions
you've made
in your
RoCET1 target
towards
2026 regarding
the AUM level,
especially considering the
fact that
the market effect
is starting
for the more
negative now. Thank you.
Todd
Tuckner
Hi, Flora. Thanks for the questions. So, on
the net new money for Credit Suisse Wealth, I appreciate your
doing a fair bit of the extrapolation math
but a long time in this business tells me
that extrapolating net new
money trends is probably not necessarily the way to go, certainly
not from you know, a month or so.
The point we've made is that we've stabilized
the business. We're seeing inflows after massive outflows
and
that for us, as Sergio highlighted, was really objective
number one, was to stabilize the business
and that
we've achieved.
16
Look, going forward in any case, we're going to be reporting these metrics
on a combined basis. We're just
giving an indication because we talked about that
in the second quarter. We gave an indication even up to
the late publication date towards the end of August.
So, we, Sergio and I, wanted to follow
through on that
and offer that perspective, but the expectation going
forward in any case is that Wealth Management, which
is how we manage the business, will be providing a
combined net new money plus dividend and
interest
figure going forward.
And in terms of the RoCET1 assumptions
in terms of AUM levels, we're doing that work
now. Naturally,
when
we develop the landing zone targets that we articulated in the second quarter, we had a view on growth, but
now we're
validating that in
our business
planning process and
we'll come back
and offer
specificity around
that in February.
Flora Bocahut
Thank you.
Jeremy Sigee, Exane BNP Paribas
Good morning. Thank you. I'd like
to ask two questions about non-core, if I could.
The first one on the RWA
outlook, you've had a great start already reducing that balance
down quite effectively. The runoff you show
in the slide is effectively the natural runoff with no action, but
clearly you are taking action. So, is it
reasonable for us to expect that rather than being
down 50%, it could be down 75% or 100%
within that
sort of three-year timeframe? It seems that you're on a
more aggressive trajectory than that passive runoff
that you're showing in the slide.
And then,
the second
question is
also about
non-core, about
the P&L.
So you're
annualizing in
this quarter
around USD 1 billion positive
revenues and USD 5 billion
of costs. I just wonder
is that a representative starting
point for
us to
sort of
model non-core
going forward?
And linked
to that,
how much
could that
change in
2024? Could we see – will we
still see positive revenues in 2024 in
non-core? And how much could we
expect
the costs to reduce in 2024 in non-core?
Sergio P.
Ermotti
I think, Todd, I mean, let me start with taking the one on – you know we are giving as we mentioned
last
time, we just give you a flavor for the natural decay
in order for you to understand that, what will
be the
leftover in case we do nothing. And as you
pointed out, we have been pretty active.
Having said that, I don't think it's reasonable to assume
that we're going to take down 100% or 75% to
100% per se because it all depends on at
what terms we will do it. The very critical
topic here is that we have
to do it in a way that creates value and not just headlines.
So, we can get rid of probably many of those
positions, but destroying a lot of value. And this will be
in conflict with capital accretion and the ability for us
to return capital to shareholders.
So, I think
that it's very
clear what
is the framework
we are using
and I think
objective number
one around non-
core is not necessarily just
to accelerate the wind down of
assets, but it's to take down
cost. That's the much
more critical element of freeing up capacity and resources.
17
Todd
Tuckner
And Jeremy, on the P&L question, for sure, on the revenue side, I would not annualize the current quarter's
revenues. The revenues are a function of – the market through which we
would exit these positions. It
depends on the nature of the positions we're talking about.
It depends on market conditions. We'll be
opportunistic and everything, Sergio just
said that actually informs the dynamic about
the speed, the timing,
the intensity of when we get out of positions
is, of course, what governs in
that respect. So, I would put no
sort of target or certain extrapolation. Certainly, no extrapolation to the current quarter's
revenues in NCL is
saying, well that's a run rate.
On
the cost
side,
I
would argue
that's different
because there
you're
looking at
–
on
the underlying
OpEx,
you're looking at, at this point, the run rate cost to support the rundown of
the business. So, as that business
runs down, you would expect that the costs associated, the underlying OpEx supporting the portfolio will also
run down. Now, that may not be linear and I wouldn't expect it to be linear,
but it ought to be somewhere in
some way, shape or form correlated with the size of the balance sheet as it starts to
diminish over time.
Jeremy Sigee, Exane BNP Paribas
Okay. Thank you.
Andrew Lim, Société Générale
Hi. Morning. Thanks for taking my questions.
So just turning to tax. Obviously, we saw some nice RWA
reduction, but it was negated by the high tax charge.
But at the same time, you're talking about mergers
of
the divisional structure to enable you to reduce the effective tax
rate. I was wondering if you could give us
more specificity on when we can expect that to happen.
And would that be a gradual process for the
reduction in the effective tax rate, or would that be actually
a step-down change there?
And then, my second question is, you've done a good job on costs, well done there. The exit run rates for the
end of the year, I was wondering if you could update us on that.
Todd
Tuckner
Thanks, Andrew. So, on the tax question, in terms of timing. As I mentioned
in my remarks, certainly the
elevated tax rate is a function of the fact
that the expenses that are weighing on our pre-tax at the moment,
in particular, the integration related expenses are being incurred in jurisdictions where we're not able to offset
– even within the jurisdictions - necessarily offset profits and
losses in different entities just given where they
fall out.
So there could be expenses or losses in one entity that's
not tax grouped with an entity that is generating
taxable profits. And that's indeed what's happening
really across the globe because the Credit Suisse entities
in particular, as you'll appreciate under Credit Suisse AG, which is not yet merged with UBS AG, those
are
separate chains of entities. So, therefore, anything happening
on the CS AG side that you would otherwise
ideally shelter with profits of the UBS side, isn't happening
until we start the mergers.
Now, once we do that, your
question was, is it
a step or it's gradual?
We'll see both. I mean,
certainly we'll see
some immediate benefits by bringing together certain
entities. Others are going to be harder work and harder
planning to unlock some additional tax value and get the rate to a lower level. So you’ll see
once the mergers
take place over the course of 2024, you'll see some step down. But you'll also, as I said, gradually see the rate
come back in.
18
In terms of the update for year end,
we did say that as of the
third quarter, we see the run rate saves in excess
of
USD
3
billion
and
expect
to
make
further
progress.
We're
undertaking
actions
at
present.
We
haven't
quantified that,
but you
can expect
that there
will be
further progress
in the
fourth quarter
before we
exit 2023.
Andrew Lim, Société Générale
That’s great. Thank you.
Amit Goel, Barclays
Hi. Thank you. Two questions from me. So, the first is, I mean, so clearly the legal entity
merger is pretty
important in terms of the kind of the costs
and the tax and so forth. So, do you
mind just reminding us
exactly the main pieces and in terms of the
timing? So, would you be expecting some
of that to happen
within the first half of the year or is that kind
of second half? And just things that
we can monitor to check
the progress there.
And then,
secondly,
just in
terms of
the revenue
picture, just
into Q4,
obviously,
there's the
commentary on
the transactional income and
NII. Just thinking – are you thinking
the underlying revenues Q4 ex-NCL
are likely
to be in line with what we've seen in Q3 or slightly
better or due to seasonality, slightly worse? Thank you.
Todd
Tuckner
Thanks for the questions, Amit. So, on the
legal entities, in terms of the main pieces and the timing,
obviously, the big groups to address are the parent banks that will take place, the two Swiss banks and then
the US IHCs and the subsidiaries below. I mean, I'd say those are – and in the
UK as well. And those are going
to be the biggest chunks.
Of course, across the globe, there's also a lot of undertaking
in Europe and in Asia. But the big – I highlighted
the big pieces because that's what you
were looking for. We are working hard on developing plans for all of
those. I think it's fair to say over the course
of 2024, I won’t at this stage, speculate
on exact timing, but we'll
provide more updates as we go and as we enter the year
and as we go through the year, we'll give you more
specificity around timelines.
In terms of the revenue picture in the fourth quarter, I mean, as you mentioned, repeating back that I offered
some NII guidance for our core businesses in terms
of underlying NII. We do see the potential for transactional
activities. I mean, the market for transactional
activities is a bit clouded at the moment.
We are seeing some risk off even though, earlier this month certainly
some of the less hawkish sentiment,
coupled with further rate hike pauses, and
seeing bonds and equities rally more recently, that would suggest
perhaps more risk on. But I think that's all counterbalanced
as well in our clients' minds also about what's
happening in the Middle East.
And so we do see the
potential for TRX in our asset
gathering businesses as well
as transactional activity in our
IB to potentially be affected by that. And as you mentioned, seasonality
will for sure, in any event, be a factor.
So I'd
say the
revenue picture
is a
bit clouded,
but I,
at this
point, wouldn't
necessarily expect
it to
increase
quarter-on-quarter significantly at this stage.
19
Amit Goel, Barclays
Got it. Thanks. And just on the legal
entity piece, so just sorry for my understanding, it's like getting
the legal
work
done
and
getting
the
regulators
to
kind
of
sign
off.
And
just
in
terms
of
the
main
things
that
you,
obviously, have to get done to do the mergers, is that right?
Todd
Tuckner
Yes.
That's correct. There is
a lot of planning
to be done. The
planning manuals are incredibly
extensive. And
of course,
it needs
to be
approved by
the regulators.
And when
you think
about the
parent bank
and how
many jurisdictions
they operate
in, you're
talking about
regulators across
the world.
So these
are not
simple
transactions by any stretch of the imagination.
Amit Goel, Barclays
Okay. Thank you.
Benjamin Goy, Deutsche Bank
Hi. Good
morning. Two
questions, please.
The first,
if you
could maybe
speak about
the profitability
of the
recovery of funds and assets of Credit
Suisse and how that's going, the discussion with clients there.
And the
second is, it looks like, in particular,
non-core significantly outperformed your expectation you set in Q2 in the
third quarter.
So just wondering, what does it mean for the budget, so to say,
you have to, for an accelerated
rundown in Q4 and beyond. Thank you.
Sergio P.
Ermotti
Yes.
I mean, in terms of
the non-core, I don't
think that extrapolating a quarter is
meaningful. I do – as
Todd
mentioned before, we need to look at –
in some cases, we were able to
dispose assets above marks. In others,
we will need to make an assessment about
what we think is the value of those positions.
But I would
pay attention to
not to use
the third quarter
numbers and extrapolate
and call it
is better than
what
we expected because we didn't really give
any guidance on that. So, I mean,
I think that we are confident that
the quality,
broadly speaking,
of the
assets is there.
They are
non-core assets
per se. The
vast majority
is not
problematic
and
therefore
I'm
not
overly
concerned about
the
revenue
or
the cost
to
exit.
As
I
mentioned
before, it's more
of a matter of
addressing the cost to
sustain those assets than it
is about managing out
the
assets themselves.
In terms of
recovery of the funds,
we see a
– the win-back strategy
is still in
place. We have been
– we are
–
very focused.
And probably
what I
can offer
as a
comment is
that as
time goes
by we
saw it
already in
the
second quarter of
the year after
the announcement of
the transaction, and
definitely,
has been confirmed in
the third
quarter.
Basically,
the third
quarter is
a year
after you
started to
see departure
of assets
and client
advisors from Credit Suisse.
Despite the massive outflows
that you saw, the amount of
assets that were able to
be moved
by the
people that
were serving those
assets has
been within
what we
expected, on
average no
more
than 20%. So the
first big issue, as
I said, we have
been able to keep
the vast majority
of the assets.
So it's very
difficult for people that move out to be able to bring
the assets with them.
So if you look at the numbers, it's quite – I can
give you maybe a little bit of anecdotal
evidence. I mean, we
lost around – or Credit Suisse in the last 12 months lost
around 500 client advisors. They moved so far USD
20 billions of assets. So – and let's say that we
we're going to lose further assets because some of
those
people just left more recently, and we're going to see some outflows later on, but we are totally convinced
that it's not going to be a multiple of that
USD 20 billions, the future outflows. And we are working
hard to
recapture some of it.
20
So,
I
think that
our
strategy now
is
more
focused on
regaining
the clients
that left
because
of fears
of the
instability of the system. And in that sense, we maintain our ambitions,
as we say.
Most likely,
we're going to
formulate these
ambitions, as
Todd
mentioned, as
a combined
wealth management business
going forward
because, I mean, it's not
really an issue any longer, Credit Suisse versus UBS, it’s one team.
We are working on
maximizing the
outcome. And
so we're
going to
just outline
our net
new money
growth ambitions
in our
three-
year plan in a way that reflects win-backs and organic
growth.
Benjamin Goy, Deutsche Bank
Good. Thank you.
Chris Hallam, Goldman Sachs
Yeah. Good morning, everyone. Just two from me. So, on profitability, clearly better than expected in the
quarter. Previously,
you'd guided for positive underlying
PBT in H2 and breakeven in the third quarter. So,
given the third quarter is already quite positive, does that
change how we should think about Q4? I guess
the
old guidance implied a sequential improvement in
the fourth quarter in terms of PBT. So just wondering
whether that's still the right way to
think about that.
And then,
second, and
I appreciate
it's a
bit of
a follow-up
to some
of the
earlier questions
on CS
net new
money.
You've
given
the regional
disclosure
on
a
combined
basis,
but
I
just
wanted
to
check
whether the
combined regional
picture, sort
of Asia
strong,
EMEA strong,
Switzerland more
balanced. Is
that consistent
across both the CS and UBS Wealth franchises?
Todd
Tuckner
Thanks, Christopher. Yeah.
On the second question, it is consistent, obviously
ex the US given CS doesn't
have a wealth presence there, but across, it is. I would say the APAC and EMEA proportionality holds
obviously on the smaller base that we
were talking in terms of the net inflows this quarter
compared to the
UBS side. But yes, that dynamic does hold.
In terms of profitability in the fourth quarter, I would say that we certainly accelerated a bit
of what we were
forecasting back in August in terms of 3Q, 4Q where we
said roughly breakeven in 3Q and further progress in
4Q. I think we've seen the progress that we've been able to
accelerate. So really undertaking and executing
integration at pace. And you see the results
of that.
I'd say 4Q in
a way standing
alone relative to how
we saw it back
in August is still
around the same. So
I would
look – meaning
I would say
we expect 4Q
to come in
better than breakeven,
which is what
we said was
the
case back in
August. And I would
say balancing the execution
on the cost side,
but also considering some
of
how we're guiding on the
revenue side I think that
number you have an
idea of where we, at this
stage expect
that number to come in.
Chris Hallam, Goldman Sachs
Thanks, Todd. Helpful.
Sergio P.
Ermotti
Okay.
I think this was the
last question. Let me thank
you for dialing in
and by just quickly reiterating,
as you
can see, we are in full execution
mode, but also at the
same time we are planning for
the future. And the next
milestones, other than the
operational one I just or
we just described, is
to prepare the three-year plan that
we
will present in February.
21
In the meantime, we are very
focused really on, as I said,
on execution. And I'm totally convinced that we are
in
a
good
place
and
of
course,
in
our
mission
to
really
create
some
things
that
will
not
only
be
a
huge
restructuring story,
but also something that has
set the base for
future growth and ambitions
that we have. I
mean, we look
forward to present
you the three-year
plan in February.
And I'm sure
in the meantime,
we're
going to be in touch either directly or through my colleagues
for the follow-ups of this call.
Thank you for calling in and enjoy the rest of the
day. Thank you.
22
Cautionary Statement
Regarding Forward-Looking
Statements |
This presentation 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, recent terrorist activity
and escalating armed conflict 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 Credit
Suisse 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 bank; (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 Credit Suisse;
(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,
including the COVID-19 pandemic and the measures taken to
manage it, which have had and may
also
continue to
have a
significant adverse
effect on
global and
regional economic
activity,
including disruptions
to global
supply chains
and labor
market
displacements; (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
Credit
Suisse;
(vi)
changes
in
central
bank
policies
or
the
implementation of financial legislation and regulation in Switzerland, the US, the UK, the European
Union 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
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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 Credit Suisse,
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
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handling of customer
transactions; (xii) the
liability to which
UBS may
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possible constraints or
sanctions that regulatory
authorities might
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including the
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operational risk component of our RWA,
including as a result of
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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
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and control its
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changes in
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or tax standards
or policies, and
determinations or interpretations affecting the
recognition of gain or
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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
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threats from
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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 currently existing
in the Credit
Suisse Group, 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
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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
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made by UBS
with the SEC,
including 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.
23
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:
November 8, 2023