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: August 15, 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
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 transcript of the UBS Group AG 2Q24 Earnings
call remarks and
Analyst Q&A, which appears immediately following this page.
1
Second quarter 2024 results
14 August 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 second
quarter
2024 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.
It
has
been
a
little over
a
year
since
the closing
of
the acquisition.
We
made significant
progress
and UBS
continues to deliver on all of its commitments
to stakeholders.
Putting the
needs of
clients first
during a
challenging market
environment has
allowed us
to maintain
solid
momentum while we
fulfill our objective
of completing the
integration by the
end of 2026.
As a consequence,
not only
we have
dramatically reduced
the execution
risk of
the integration,
we are also
well positioned
to meet
all of our financial targets
- and return to the level
of profitability UBS delivered before
being asked to step in
and stabilize Credit Suisse.
I am
particularly proud
to note
that across
the combined
organization our
people are
embracing the
pillars,
principles and behaviors that drive
UBS’s culture.
These include client centricity and collaboration
and enable
us to successfully manage risk and act with
accountability and integrity.
I’d like to thank all my colleagues around the world
for their dedication and hard work.
Our second-quarter results contributed to a
strong first-half performance, reflecting the strength
of our client
franchises and
disciplined implementation of
our strategy
and integration
plans.
Reported net
profit for
the
first half was 2.9 billion, with underlying PBT of 4.7
billion and an underlying return on
CET1 capital of 9.2%.
We strengthened our capital position and maintained a balance
sheet for all seasons, with a CET1 capital ratio
of 14.9%
and total
loss-absorbing capacity of
around 200
billion.
Our parent
bank is
well capitalized,
even
after withstanding the removal of
significant regulatory concessions previously granted to Credit
Suisse.
As a
result, we are
executing on our 2024 capital return
plans and, as I mentioned last
quarter,
we are committed
to delivering on our mid-to-long term ambitions
for dividends and buybacks.
2
Turning
to the integration, we
have captured nearly
half of our
targeted gross cost
savings as we
restructure
our core
businesses and
wind down
Non-core and
Legacy,
where we
have materially
reduced risk-weighted
assets over the last twelve months.
As
part
of
our
de-risking efforts,
we
have
also
made
good
progress
addressing
Credit
Suisse’s
legacy
legal
issues, including the Supply Chain Finance
Funds and Mozambique matters.
Following these
intense months
of execution,
during which
we obtained
more than
180 approvals
from roughly
80 regulators
in more
than 40
jurisdictions, we
completed the
mergers of
our parent
and Swiss
banks, and
transitioned to a single U.S. intermediate holding
company.
This clears the way for the next set of critical milestones that will support the realization of further integration
synergies.
But let me reiterate something you’ve heard me say before: We still have a lot of work ahead of us to address
Credit Suisse’s structural lack of sustainable profitability.
While we
are encouraged by
the significant
progress we
have made
across the
Group, the
path to
restoring
profitability to the pre-acquisition levels won’t be linear.
We are
now entering
the next
phase of
our integration which
will be
key to
realizing the
further substantial
cost, capital, funding and tax benefits necessary
to deliver on our 2026 financial targets.
We are following through on our plans amid heightened uncertainties in the markets. These are the moments
in which UBS proves its strength, resilience and superior ability to
serve and advise clients.
This is reflected in the trust that our clients have placed in us every quarter since the close, with a total of 127
billion in net new assets.
We’ve
also
remained
focused
on
our
strategic
objectives
to
enhance
our
client
offering
and
leverage
the
breadth, scale and synergies of our combined franchises.
In the
Investment Bank,
I am
pleased by
the client
response to
the strategic
additions we
have made
to reinforce
our capabilities and competitive position.
The first-half performance is
a positive signal
that the investments are
paying off.
In Global Markets
we saw
the highest second
quarter on record.
And in Global
Banking we have
captured sizeable market
share gains.
Importantly, we achieved these results without compromising on our risk and capital discipline.
We are also
increasing collaboration across the firm
as GWM clients continue to benefit
from our IB products
and
capabilities.
This
drove
the
majority
of
wealth
management’s
expansion
of
client
activity
this
year,
particularly in the Americas and APAC.
Another
example
is
our
newly
created
Unified
Global
Alternatives
unit
which
combines
our
Alternatives
investment capabilities across GWM and Asset Management.
In
fact,
this
is
not
just
an
internal
cooperation.
We
are
reshaping
the
competitive
landscape
by
effectively
creating a
top-5 global
player and
Limited Partner
with 250
billion in
invested assets
across hedge funds,
private
equity, private credit, infrastructure and real estate.
3
Unified
Global
Alternatives
will
offer
our
institutional,
wholesale,
wealth
management
clients
a
more
comprehensive
offering
and
enhanced
access
to
exclusive
co-investment
opportunities.
It
will
also
provide
General Partners with a single point of access
to the full distribution power of our firm.
In Asset Management, we
are offsetting margin compression by
increasing operational efficiency, which is one
of the key focus areas for the business.
In Switzerland, we
continue to enjoy
the trust of
our clients, despite
a very competitive
and, at times,
less-than-
constructive environment.
With around 30 billion Swiss
francs in net new deposits
in the last 13 months and approximately
350 billion of
loans extended to clients, we continue to maintain
our role as an important engine of credit.
Since the acquisition we granted or renewed around 85
billion Swiss francs of loans.
Higher
interest
rates,
the
cost
of
increased
regulatory,
capital
and
liquidity
requirements,
a
changing
macroeconomic outlook, and,
last but not least,
the necessity to reprice
some loans granted
by Credit Suisse at
unacceptable risk-returns are having an impact on pricing
of new credit.
Of course, those are not always easy discussions to have with clients, but we are constructively engaging with
them, and I believe the vast majority understand
the rationale.
Switzerland is
a key
pillar of
our strategy
and we
are fully
committed to
maintaining our
leadership. Swiss
clients
and
the
economy
benefit
from
UBS’s
unparalleled,
competitive
global
reach
and
capabilities.
In
turn,
our
Swissness is a unique differentiator when serving clients
around the world.
As a testament of
this symbiosis, we were
recognized by Euromoney as Switzerland’s Best
Bank for the tenth
time since 2012 and the world’s best bank.
As
we
continue
our
integration
journey
in
the
Swiss
business,
we
believe
it
will
be
important
to
further
communicate with all our
stakeholders about our
approach and strategy.
To
that end, in September, our head
of Switzerland, Sabine
Keller-Busse, will present
at our flagship
Best of
Switzerland conference, which brings
together investors and corporate clients.
Looking ahead and
more broadly,
ongoing geopolitical tensions
and anticipation ahead
of U.S. elections
will
likely result in heightened market volatility compared
to the first half of the year.
In this environment we have two key
priorities: First, we must continue to help
clients manage the challenges
and opportunities that arise.
Second, we
must stay
focused and
not allow
short-term market
dynamics to
distract us
from achieving
our
ultimate goal,
which is
to continue
to execute
on the
integration and
invest strategically to
position UBS
for
long-term value creation.
The management appointments
we announced in
the second quarter
will enable us
to continue to
progress on
this journey. At the same time, we can put even more emphasis on our priorities and prospects
for sustainable
growth, particularly in the Americas and Asia-Pacific.
4
We are
confident this will
also help us
to deliver better
outcomes for our
clients and the
communities where
we live and work.
With that, I hand over to Todd.
Todd
Tuckner
Slide 5 – Sustained revenue momentum with steady
progress on cost reduction
Thank you Sergio, and good morning
everyone.
In the second quarter,
we delivered strong underlying profitability,
and we made further progress
in reducing
costs and optimizing our balance sheet.
Net profit in the quarter was 1.1 billion.
Our EPS was 34 cents and our underlying return on CET1 capital
was
8.4%.
Throughout my remarks
today,
I refer to
underlying performance in US
dollars and make comparisons
to our
performance
in the
first quarter, unless
stated otherwise.
From the
third quarter
onwards, we’ll
revert to
making
year-on-year comparisons as, by
then, the prior year period
will fully capture combined performance
post the
Credit Suisse acquisition.
Slide 6 – 1.1bn net profit with strong underlying profitability
Turning
to slide 6.
Total
revenues for the
quarter reached
11.1 billion with
top-line performance in
our core
businesses holding up nicely from a strong first quarter, down 2% sequentially.
Net interest
income headwinds
were partially
offset by
higher recurring
fee income
in our
wealth and
Swiss
businesses, and by improving activity in IB capital
markets.
Revenues in our
Non-core and Legacy
business were positive
in the quarter,
albeit 0.6 billion
lower versus an
exceptional first quarter.
On a reported basis, revenues reached 11.9 billion and included 0.8 billion of mainly purchase price allocation
adjustments in our core businesses, with an additional
0.6 billion expected in the third quarter.
Underlying operating
expenses in
the quarter
were 9
billion, decreasing
by 3%.
Excluding litigation
and variable
and Financial
Advisor compensation
tied to production,
expenses were also
down 3% as
we further
progressed
our cost-cutting and workforce-management initiatives
despite the intense integration agenda.
At the end of the second quarter,
there were about 35 hundred fewer
total staff compared to the end
of the
first quarter, and 23 thousand, or 15%, fewer since the end of 2022.
Integration-related
expenses
in
the
quarter
were
1.4
billion,
resulting
in
reported
operating
expenses
of
10.3 billion.
Credit loss expense was 95 million, driven by a small
number of positions in our Swiss corporate
loan book.
5
Our
tax
expense
in
the
quarter
was
293
million,
representing
an
effective
rate
of
20%,
helped
by
NCL’s
performance and the initial positive effects of completed
legal entity mergers.
In the second
half of 2024,
excluding the effects of
any DTA
re-valuation, we expect the
effective tax rate to
be around 35%,
mainly as expected pre-tax
losses in legacy Credit
Suisse entities can’t be
fully offset against
profits elsewhere in the Group.
The tax rate could benefit if NCL continues to
perform better-than-expected.
We continue to expect the
ongoing optimization of our
legal entity structure to gradually
support a return to
a
normalized tax rate of around 23% by 2026.
Slide 7 – Ongoing progress on gross and net cost saves
Turning to our quarterly cost update on slide 7.
Exiting the second quarter, we achieved an additional 900 million in gross cost saves when compared to three
months earlier,
bringing the
cumulative total since
the end
of 2022
to 6
billion, or
around 45%
of our
total
gross cost save ambition.
We estimate that around half of this quarter’s
saves benefit our underlying
opex with the other half reinvested
as planned
in our
technology estate
as well
as to
offset increases in
variable and
Financial Advisor
compensation
tied to production.
To
date we’ve generated around 4 billion of net saves, primarily driven by
NCL, which has shed around 3 and
a half billion of its 2022 cost baseline.
Following the legal entity mergers, we
now turn our focus to
the critical client account and
platform migration
work planned for
our core businesses.
We start in the
fourth quarter with
GWM’s booking hubs
in Hong Kong,
Singapore,
and
Luxembourg, followed
thereafter
by
client
account
transitions in
our
Swiss
booking
center,
which supports both GWM and P&C.
Along with
our ongoing
cost run-down
efforts in
Non-core and
Legacy,
these initiatives
represent
the most
material drivers
of future
cost savings
as we
decommission technology
systems, hardware
and data
centers,
while also unlocking further staff capacity.
As I highlighted
last quarter, the pace
of saves
is expected
to moderately
decelerate from
the quarterly
run rates
observed over
the last
several quarters
while we
prepare for, and initially
undertake, these
significant integration
activities.
We expect to pick-up the pace as
we implement these transitions throughout 2025 and into 2026,
particularly benefiting the cost/income ratios
of GWM and P&C.
The rate at which we are incurring integration-related
expenses, which front-run underlying opex saves,
is also
indicative
of
the
headway
we’re
making
on
costs.
In
the
second
half,
we
expect
to
book
2.3
billion
of
integration-related expenses, of
which 1.1
billion in
the third
quarter.
By the
end of
this year,
we expect to
have incurred around 70% of total costs to achieve our
2026 exit rate efficiency targets.
Slide 8 – Maintaining a balance sheet for all seasons
Moving to our balance
sheet.
In the second quarter
we reduced risk-weighted assets
by a further 15 billion,
of
which 8 billion from the active run-down of positions in
our Non-core and Legacy portfolio, which I will come
back to shortly.
6
Over 8
billion of
the decline
was seen
across
the core
business divisions,
mainly resulting
from the
financial
resource optimization work in GWM and P&C.
As I highlighted earlier in the year, this work is addressing sub-
hurdle returns on capital deployed, including by reducing
deposit and loan volumes.
The upshot is additional
capacity to absorb headwinds from regulatory
and risk methodology changes, model harmonization between
the two banks, and the implementation of
Basel 3 Final, now confirmed for January
2025.
While
we
continue
active
dialogue
with
our
supervisor on
various
aspects
of
the
final
rules,
at
present
we
continue to expect the Day 1
impact of Basel 3 Final
to be around 5%
of RWA, driven mainly
by FRTB.
We’ll
update our estimates by no later than the fourth
quarter as requirements firm.
Our leverage
ratio denominator
decreased by
35 billion
in the
quarter.
This reduction
was driven
by several
factors, including
full repayment
of the
central bank
ELA facility
granted to
Credit Suisse,
lower lending
volumes,
mainly from our financial resource optimization efforts, and the active
run-down of our NCL portfolio.
We ended the second quarter with an LCR of 212%,
reflecting the ELA repayment, and TLAC of 198 billion.
Slide 9 – Strong capital position at group and parent bank level
Turning to slide 9. Our CET1 capital ratio as of quarter-end was 14.9%.
The numerator reflects
accruals of this year’s
expected dividend and a
reserve for 2024
share repurchases, of
which we have executed 467 million
of the planned 1 billion,
as of last Friday.
Additionally,
our CET1 capital
includes all relevant portions of the purchase price allocation adjustments made to Credit Suisse’s equity as of
the acquisition date last June.
With the 12-month measurement period now concluded, total PPA
adjustments against the purchased equity
of Credit Suisse amounted to negative 26.5 billion,
of which about 70% reduced CET1 capital.
Following
completion
of
the
parent
bank
merger
earlier
in
the
quarter,
next
week
we’ll
report
UBS
AG’s
consolidated and standalone capital ratios and
other information for the first time
on a combined basis.
UBS AG’s standalone CET1 capital ratio at quarter-end
is expected at 13.5% on a fully applied
basis.
To
put this capital ratio in perspective, it’s important to compare
the way we manage our parent bank capital
versus Credit Suisse’s pre-acquisition practices.
We provide for the complete transition of the risk-weight rule
changes applicable
to UBS
AG’s subsidiary
investments,
which overall
are valued
prudently.
Moreover, we don’t
depend on
any affiliate
valuation concession
from the
regulator.
This was
not the
case with
Credit Suisse
before
the take-over,
where its approach overstated
the parent bank’s resilience,
and ultimately limited restructuring
optionality.
In this
context, our
merged parent
bank already
provides for
around 20
billion of
additional capital
resulting
from the
acquisition, including the
progressive add-ons
from growth
in balance sheet
and market share
that
will be phased-in
over five years
starting in 2026.
The result is a
parent bank capital
buffer of around 100
basis
points above the current fully-applied requirement by 2030.
Slide 10 – Global Wealth Management
Moving to our business divisions, and starting
with Global Wealth Management on slide 10.
7
GWM’s
pre-tax
profit
was
1.2
billion
on
revenues
of
5.8
billion,
which
were
up
3%
year-over-year
on
an
estimated, combined basis.
Against a complex economic backdrop, clients sought our differentiated
advice and solutions as evidenced by
continued strong momentum in net new asset
inflows and transactional activity.
Overall,
we
generated 27
billion
of net
new
assets, a
growth
rate
of
2.7%,
with positive
inflows
across
all
regions.
I’m particularly pleased with this result considering the
variety of headwinds to net new asset growth
that the
business successfully navigated
in the
quarter,
including around
6 billion
in seasonal
tax outflows in
the US. Let me unpack this further.
To
date, we’ve
retained
the vast
majority of
Credit
Suisse’s invested
assets notwithstanding
that more
than
40% of Credit Suisse’s wealth advisors have
left since October 2022.
I would also note that these relationship
managers advised
on only
20% of
assets, meaning
that, overall,
we’ve retained
the more
productive Credit
Suisse advisors, a testament to the appeal
of our platform.
We’ve also kept around 80% of the first large wave of maturing fixed term deposits from last year’s win-back
campaign, with the peak in maturities expected
in the third quarter.
Furthermore,
we
made
strong
progress
this
quarter
in
our
efforts
to
increase
profitability
on
sub-hurdle
relationships.
Higher returns come from both
driving increased platform revenue and
proactively exiting sub-
par loans, with these actions in the quarter boosting the revenue over RWA margin by
around 30 basis points
sequentially.
Lastly, from a macro standpoint, the
equity capital markets,
and in particular
IPO activity, ordinarily a significant
driver of wealth creation and net new asset generation,
have only recently started to recover.
These dynamics underscore the
basis of our short-term
annual guidance of 100
billion for 2024 and
2025 and,
equally,
the
resilience
of
our
net
new
asset
achievement
in
the
quarter
as
well
as
the
high
level
of
client
conviction in our advice and solutions.
Now, onto details of GWM’s financial performance.
Revenues declined
2% sequentially, as lower
NII and
the expected
sequential drop
in transactional
activity, were
partially offset
by growth
in recurring
net fee
income, supported
by higher
average levels
of fee
generating
assets.
Net
interest
income
decreased
by
2%
sequentially
to
1.6
billion,
driven
by
ongoing
deposit
mix
shifts
and
declining loan volumes, partially offset by our
repricing actions, which as mentioned support
higher returns on
capital and net interest margin.
Looking towards year-end,
we maintain our
previous guidance that
full year 2024
NII will be roughly
flat versus
4Q23 annualized.
This includes
a low-to-mid
single digit
percentage sequential
drop in the
third quarter, driven
by a decrease in volumes,
mix shifts in anticipation
of falling rates,
and the impact
on our replication portfolios.
In arriving at
this outlook, and
in light of
recent rates volatility,
we’re modeling 100
basis points of
US dollar
policy rate reductions by the end of 2024.
8
The
outlook for
net
interest
income
in
our
US
wealth business
is
expected to
be
influenced by
competitive
dynamics
affecting
the
pricing of
sweep
deposits.
By
the
middle of
4Q24,
we
intend
to
adjust
the
sweep
deposit rates
in our
US advisory
accounts, which,
net of
offsetting factors,
are expected
to reduce
pre-tax profits
by around 50 million annually.
Looking across
our wealth
business beyond
year-end, we expect
an inflection
point in
GWM net
interest income
around the time implied
forwards reach a structural
floor and stabilize, and
clients begin to re-leverage,
driving
loan balances and NII higher.
Moreover,
it’s essential to consider that GWM’s diversified and
CIO-driven fee-generating business model has
proven
both
its
appeal to
clients
and
ability
to
drive
profitable
growth,
even
during
past
periods
of
low
or
negative interest
rates.
Consequently,
in addition
to increased
lending, it’s
reasonable to
expect that
lower
interest rates will spur increased
transactional activity, mandate sales and investments
in alternatives across our
wealth business.
Recurring net
fee income
increased
by 3%
to 3.1
billion from
higher client
balances.
Net
sales
in our
UBS
managed account offerings showed continued momentum,
contributing to a sequentially higher recurring net
fee margin in the quarter.
Transaction-based
revenues
decreased
quarter-on-quarter to
1.1
billion,
but
notably increased
around
14%
year-on-year
on an
estimated, combined basis,
with APAC
up around
30% and
the Americas
up over
20%,
and
broadly
flat
sequentially
versus
a
strong
first
quarter.
Both
regions
performed
exceptionally
well
in
structured products as clients sought customized investment opportunities in an environment of low volatility,
high interest rates, and continued global tech appeal.
I would also highlight that
our investments in combining
GWM and IB markets and
solutions capabilities in the
Americas are paying off as evidenced by our transactional revenue performance over the first half of
the year,
up around 20% versus the same period in 2023.
Expenses were
roughly flat
quarter-on-quarter.
Excluding compensation-related effects,
underlying operating
expenses
dropped
2%
sequentially.
As
highlighted
earlier,
the
upcoming
client
account
migration
work
is
expected to be a significant driver of cost reductions in
GWM throughout 2025 and into 2026.
Slide 11 – Personal & Corporate Banking (CHF)
Turning to Personal and Corporate Banking on slide 11.
P&C delivered a second quarter pre-tax profit of 645
million Swiss francs.
Revenues were
down 4% sequentially,
driven by an
8% decline in
net interest
income that was
partly offset
with increases in recurring net fees and transaction-based
revenues.
P&C’s NII
in the
quarter was primarily
affected by
higher liquidity
costs and
the SNB’s
25 basis
point interest
rate cut from March, as we kept our Swiss clients’ deposit
pricing unchanged.
In the third quarter, we expect NII to tick
down sequentially by a
low single digit percentage, mainly
due to the
effects of
the SNB’s
second 25
basis-point rate
cut from
late June.
In US
dollar terms,
we expect
NII to
be
roughly flat sequentially.
9
Despite these effects, as well as higher costs related to the SNB’s move earlier
in the quarter to raise minimum
reserve
requirements,
we
nevertheless
reaffirm
our
full-year
2024
guidance
of
a
mid-to-high
single
digit
percentage decline versus
4Q23 annualized,
supported by
our balance
sheet actions.
In arriving at
this outlook,
we are currently
pricing-in up to two further
Swiss franc policy rate
reductions of 25 basis
points each by the
end of 2024.
Assuming Swiss franc interest
rates stabilize next year,
as the forward
rate curve presently implies,
we expect
shortly thereafter to see steadying volumes and an inflection
point in P&C’s net interest income.
We also
expect by
then that
our balance
sheet optimization work
will be
largely complete, with
loan pricing
reflecting a more
appropriate cost of risk
across the Swiss
credit book.
These efforts are
necessary to restore
returns on capital deployed and net interest margin
in our Swiss business to pre-acquisition levels.
In this respect, we saw net new lending outflows of 3.4 billion Swiss francs this quarter,
driven by repricing of
sub-hurdle volumes,
despite having
renewed or
granted new
loans to
our Swiss
clients of
around 30
billion
Swiss francs in 2Q.
Transaction-based revenues
were up
2% mainly
from higher
credit card
usage.
Recurring
net fee
income gained
3%
on
higher
custody
assets.
Together,
these
non-NII
revenue
lines,
up
2%,
demonstrate
the
business’s
effectiveness in staying close to clients and minimizing
merger dis-synergies.
Credit
loss
expense
was
92
million,
driven
by
a
small
number of
positions
in
our
corporate
loan
book, as
I
mentioned earlier.
Even with the increased focus on
risk-based pricing for maturing loan positions, our Swiss
credit portfolio remains of very high quality, with an impaired loan ratio of 1.1%, down sequentially, albeit up
versus pre-Credit Suisse acquisition levels.
For the
foreseeable future,
we expect
CLE to
remain
at broadly
similar levels
given increased
book-size post
merger, the relative strength of the Swiss franc and
some economic softness
in the main Swiss export
markets.
Operating expenses were flat sequentially.
Similar to GWM, future cost
reductions in P&C will be
closely tied
to the client account and
platform migration work for Booking Center Switzerland, planned to
commence by
the second quarter of 2025.
Slide 12 – Asset Management
On slide 12, pre-tax profit in Asset Management increased 26%
to 228 million.
This quarter’s result included a gain of 28 million from the initial portion of the sale of our Brazilian real estate
fund management business.
In the
third quarter,
we expect to
record an
additional 60 million
in underlying
pre-tax profit on gains from disposals, mainly from closing the residual portions
of this transaction.
Net new
money was
negative 12
billion, with
continued client
demand for
our SMA
offering in
the US
and
positive contribution
from our
China JVs,
only partly
compensating outflows across
asset classes,
particularly
equities.
While integration efforts
to consolidate platforms may
constrain AM’s net
new money performance over
the
next few quarters, we expect our enhanced global reach and increased scale in alternatives and indexing to at
least partially offset these headwinds.
10
Net management
fees dropped
5% as
outflows in
select active products
weighed on
margins.
Performance
fees were roughly stable in the quarter.
During 2Q, AM made
strong progress in improving operational
efficiency, a key focus area I highlighted during
the investor
update earlier
this year.
Operating expenses
were 9% lower
sequentially on
reductions across both
non-personnel and
personnel costs,
partially supported
by lower
variable compensation.
Some of
the sequential
decline in variable comp is expected to normalize
in the third quarter.
Slide 13 – Investment Bank
On to
our Investment Bank’s
performance on slide
13, which, as
in prior
quarters, I compare
on a year-over-
year basis.
The IB delivered a strong second quarter result
with improving capital markets activity supporting an excellent
Banking quarter.
Our Markets businesses
performed well in
an environment reflecting mixed
market trends, in
particular low volatility
in equities, rates
and FX,
as well
as lower cash
equity volumes in
APAC,
where we’re
overweight.
Operating profit
was 412
million, up
from an operating
loss of
14 million
a year
earlier, and up 2%
sequentially,
as the investment banking
backdrop continues to improve.
Investments to deepen
our US presence are having
a positive
impact on
revenues, as
are contributions
of Credit
Suisse talent
across key
sectors of
Banking and
Markets.
Underlying
revenues
grew
by
26%
to
2.5
billion
with
nearly
two
thirds
of
the
increase
coming
from
the
Americas.
I would highlight that our revenue growth was
achieved with broadly similar levels of RWA,
as the
IB continues to manage within the Group RWA limit of 25%, excluding
NCL.
Banking revenues
were up
55% as
we outperformed global
fee pools,
both in
capital markets
and advisory.
Since the
end of
2023, we
have gained
over a
percentage point
in market
share in
each of
our strategic
banking
initiatives, including M&A and sponsors in the Americas.
Regionally, APAC
saw revenues nearly double, while
the US was up 83%.
EMEA declined by 3% against a very
strong prior period.
Capital Markets
revenues were
up 82%
year-over-year
with an
outstanding LCM
performance reflecting
an
increase in
refinancing activity,
mainly in
the US.
Advisory revenues
increased by
23% as
we leveraged
our
strong position in APAC to benefit from increased activity and performed well in the Americas.
The strength
of our
fully integrated
coverage teams
is visible
in our
ability to
win new
mandates, where
we
rank 7
th
globally in announced
M&A volumes, making for
an encouraging deal
pipeline.
While we expect
to
continue capturing
market share,
macro and
geopolitical factors
are likely
to weigh
on continued
sequential
Banking revenue growth in the near term.
Revenues in Markets reached 1.8
billion, the best second
quarter result in over a
decade, up 18% year-on-year
and driven by the Americas, up nearly 40%.
Equities revenues
were up
17%, driven
by both
Derivatives and Cash,
where we
have seen
material gains in
market share.
11
FRC
was
up
20%
with
broad
increases
across
FX,
credit
and
rates,
benefitting
from
higher
client
activity,
particularly in FX and rates options, partially offset by lower
activity and spread compression that affected our
rates flow business.
Operating
expenses
rose
12%,
predominantly
reflecting
higher
variable
compensation
linked
to
improved
performance.
Slide 14 – Non-core and Legacy
Moving to Slide 14.
Non-core and Legacy’s
pre-tax loss in the
quarter was 80 million,
supported by around 400
million in revenues,
principally from gains on position exits
across corporate credit and securitized products,
and further reductions
in the NCL cost base.
Underlying opex
was down
37% sequentially, helped by
releases in litigation
reserves of 172
million.
Excluding
litigation, operating expenses
declined by 17%, as
we made strong progress driving
down personnel costs and
third party spend.
NCL’s
six-month pre-tax
profit
of 117
million, which
far exceeds
earlier loss
expectations, demonstrates
the
business’s skillful management in de-risking
its portfolios and rapidly cutting its costs.
For the second half
of the year,
we expect an underlying pre
-tax loss of around
1 billion, reflecting moderate
short-term upside
to revenues,
and continued
sequential progress
on cost
reduction, albeit
at a
slower rate
than
observed over recent quarters.
Slide 15 – Strong progress on cost and balance sheet reductions in Non-core and
Legacy
Moving to slide 15.
Over the last
four quarters, NCL has
made impressive progress
running down its costs
across all lines,
cutting
its underlying operating expense base by over
2 billion, or around 50%.
NCL has
also excelled in
running down its
balance sheet positions,
significantly contributing to Group
capital
efficiency,
releasing 5 billion
in capital as
a result
of its efforts.
Additionally,
NCL has cut
its non-operational
risk-weighted assets by almost 60% over the last year, including by another 8 billion this
quarter, mainly from
actively
exiting
positions
across
its
portfolios,
notably
in
investment
grade
and
high-yield
corporate
credit,
securitized products, and macro.
Similarly,
NCL’s LRD is
down by over
60% since 2Q23,
dropping another 40
billion of leverage
exposure this
quarter,
reflecting lower notionals as
well as lower levels
of HQLA.
In terms of book
closures, NCL shuttered
another 10% of its active books in the quarter, bringing the total since last June
to around 45%.
Looking ahead, the progress we
are making is visible in
the natural roll-off profile,
significantly narrowing the
gap to our active run-down expectation of
around 5% of Group RWA by 2026.
Further supporting
this and
as additional
evidence of
NCL’s proficiency
in de-risking
its balance
sheet and
driving
down costs, yesterday we agreed to sell Credit Suisse’s US mortgage
servicing business.
This transaction is
12
expected
to
close
in
1Q25,
and
would
reduce
RWA
by
around
1.3
billion,
LRD
by
around
1.7
billion,
and
annualized costs by around 250 million.
Slide 16 – We are positioning UBS for sustainable growth and long-term
value creation
To summarize, the second
quarter demonstrated
the power, scale and
secular growth
potential of
our franchise
as
we
delivered
strong
underlying
profitability
and
continued
to
make
substantial
progress
across
our
integration agenda while reinforcing a balance sheet for
all seasons.
With that, let’s open for questions.
13
Analyst Q&A (CEO
and CFO)
Giulia Miotto, Morgan Stanley
Hi. Good morning. Thank you for
taking my questions. I'll ask two, please.
So my first one, thank you very
much for the guidance on NII in GWM which
was something the market was looking
forward to. Can I just
ask a clarification? If you look at the current forward curve,
when do you expect NII to bottom exactly?
Do
you think second half 2024 and then we
can grow, or possibly first half of 2025? So that's the first question.
And then the second question is, instead, on the
capital of the parent and in particular the CSI,
it seems to
have a lot of excess capital and upstreaming that
could reduce the impact of – the potential impact from the
proposal in Switzerland. Can we expect UBS to upstream
some of that capital or how are you thinking about
excess capital at subsidiaries? Thank you.
Todd
Tuckner
So, regarding the NII guidance in terms of the implied forward curve.
So as I mentioned, you know, we ended
up pricing in, as you saw, and modeled for a 25 basis point rate
cuts through the end of the year. If you look
out in, in terms when the implied forward curve would
suggest bottoming out, you know, we're probably
pricing in more like 7 depending on what you're looking at.
So, you know, I mean, from here, while difficult to speculate, it could be sometime in mid-2025,
but I spent
time what I think is really important to recognize is that,
you know, in a lower NII – lower interest rate
environment, there are significant offsets and tailwinds in the business that we
expect to see.
And that was a point that we wanted to
really ensure is well understood because ultimately transaction
revenues, re-leveraging and driving up NII from re-leveraging, and also recurring
fees from mandate sales, you
know, all have upside in an environment of lower interest rates. In terms of
the parent bank capital, you
mentioned our UK – Credit Suisse's UK subsidiary that
has excess capital, of course, we're working on
restructuring and on all of our subsidiaries where we can.
And ultimately, you know, we will as appropriate upstream the capital in any of the subsidiaries in order to
alleviate the capital at the parent bank.
Giulia Miotto, Morgan Stanley
Thank you.
Andrew Coombs, Citi
Good morning. Let's just drill down to
the areas where you've perhaps delivered ahead of expectations.
So
firstly, on the Non-core, another successful quarter of actively reducing the RWAs and some further gains on
some of those division exits. You're now talking about narrowing that gap in the natural runoff. So based on
the natural runoff you’ll be at 6% and you're aiming for
5%.
So I think that is only another USD 5 billion
inside of active RWA management in that business. And now
you
alluded to the close of the US mortgage servicing
business will get you some way towards that.
So, should we
assume that active management within the NCL
book is now largely complete or
will be largely complete by
the end of this year?
14
And then my second question is just on
costs. Previously, I think you were expecting to be at 50% by end
- You're now 55% guiding by end of 2024 of the total cost saving target of next
so USD 500 million of
cost saves you realized earlier than expected. Which division
is it that these cost are coming through earlier
than expected? And in your mind, is it purely just
a timing issue that coming through earlier as opposed
to a
quantum issue that you're delivering more cost savings
than expected? Thank you.
Todd
Tuckner
Yeah, thanks a lot, Andrew. On the second one in terms of on the costs and the performance and
outperformance we're continuing to see. I mean,
that's really driven, as I highlighted in my comments
by NCL
for sure, NCL is driven the lion's share of the gross cost saves to
date while the other divisions have
contributed, it has been really a function of their active
rundown of positions, but also the restructuring of
various parts of Credit Suisse as a G-SIB that we've
highlighted in the past is an important part of
taking out
the costs. And a lot of those costs reside, you know, in NCL. So, they've been
really the benefactor of the cost
performance. And as we look out towards the end
of the year, the additional progress that we anticipate,
even though, as I suggest, we expect a bit a moderate
deceleration in the gross cost saves, that's expected to
be yielded also by NCL. And as I highlighted,
you know, the core business divisions will then – the ratio of
core to non-core or non-core to core in terms of cost takeout will invert
as we get into the second half of the
integration agenda and we'll start to see the
significant cost reductions hitting through in particular
GWM
and P&C.
And just on the first, in terms of how we
see the natural runoff and the success we've had
in the quarter, you
know, of course, we're not counting on, you know, extrapolating and we take economic decisions
as they
arise and the opportunities arise. And so, you know, difficult to extrapolate the
great outcome that we've had
to date to suggest a different outcome than the natural roll-off. And that's
why we continue to disclose it.
So, you know, that becomes clear. What is important and Sergio commented this in his remarks that, you
know, the uncertainty delta continues to narrow. And that's what you know, I think it's important that, you
know, ultimately,
while we can't count on anything in
particular in terms of what can come off the balance
sheet of NCL, in terms of extrapolation, what
we can say is that the uncertainty delta has
narrowed very
significantly.
Andrew Coombs, Citigroup
That's clear. Thank you. I guess the follow on would just be your previous guidance was
for a typical run rate
of close to zero revenues from NCL per quarter and presuming that's
unchanged?
Todd
Tuckner
Yeah. As I said Andrew,
that we see in the long-term, that's
for sure the case in the short-term, i.e. the 2H
guidance that I offered, we see some modest upside to
current book values on the revenue side. So, some
modest uptake in driving the billion underlying
PBT loss guidance that I offered in my comments.
Andrew Coombs, Citigroup
Thank you.
Jeremy Sigee, BNP Paribas
Hi there. Thank you. Two questions, please. First one, just follows on from just exactly what you
were talking
about there, the guidance for the P&L drag from NCL.
Obviously, it's going better than expected, which is
15
great to see. What would we expect now – previously you
were talking about USD 2 billion P&L drag exit
rate
in 2025 and then USD 1 billion exiting 2026.
And obviously it's going much better
than that with sort of a
UBS 1 billion drag in the second half that you're integrating.
What should we expect for 2025? And
could the
NCL drag be finished within 2025 rather
than carrying on into 2026? Any update
on that would be really
helpful.
And then my second question, just a more sort
of specific one on investment banking costs.
They drifted up a
little bit more than revenues in the second quarter, it's not a big move, but the cost income deteriorated
against those strong revenues rather than perhaps you might
have hoped it could have improved a little bit.
So, any comments on the drivers, whether
there's any one-offs in there or anything unusual, just how we
should interpret that IB cost number, please
Todd
Tuckner
So, Jeremy, thanks. On the second one in the comp on IB costs, it's the comp quarter, of course, only has
Credit Suisse personnel in for a short period of time
for just the one month when you look
at the year-on-year
comp, whereas the current quarters as you know the people
we've added for the full quarters. So
that's
driving that that variance.
Jeremy Sigee, BNP Paribas
I'm sorry, speaking Q-on-Q, I think the costs are up 3% and the revenues are up 1%. So, I was thinking more
Q-on-Q.
Todd
Tuckner
On – yeah on Q-on-Q, it would be just some
compensation-related effects that were hitting through driving
the Q-on-Q. But I'd have to - Go back and
look at that. But really, it's more year-on-year that we focused on.
Jeremy Sigee, BNP Paribas
Which is variable. Okay.
Todd
Tuckner
On the – in terms of the guidance on the P&L
drag and in NCL, in terms of what
we should expect. Look, I
mean, we're really pleased with the performance we've
had to date, as I said in my last comments,
there's no
way to extrapolate from that performance is straight
line and to assume that that's
the, you know, the pace
of which will continue.
So, you know, we – our guidance remains, that's where in terms of the P&L drag
at the end of 2026 is right
now, still our best estimate when we come back and talk about
an outlook in the fourth quarter going
forward, you know, potentially we update that and see where we are. But for now, that's our best estimate
in terms of where we land.
Jeremy Sigee, BNP Paribas
Understood. Thank you very much.
Kian Abouhossein, JP Morgan
16
Yes, thanks for taking my questions. The first one is related to Wealth Management. First of
all, thanks again
for the disclosure. I hope some of the US peers
are listening as this was very helpful relative to what I heard
before from US peers. Sweep deposits last Disclosure was $35.7 billion.
I was wondering where we are
roughly right now in the US entity? If you could also
share – share with us the advisory part of that so we
can
kind of understand the adjustment factor
and what rate you are paying now versus what
rate you will be
paying for the fee deposits on this advisory mandates?
And in that context, if you could briefly talk
about
lending, which was down ex-US, just to understand
how much of that is related to adjustments of
your
offering to the CS client versus actually losses in lending?
And then the second question is on legal entity
on page 19, a very useful chart. And you
talk about further
legal entity simplification in the US as well
as the UK legal entity going into a branch,
I was wondering what
capital relief you expect from that or maybe even in subjective
terms, if you can talk a little bit about
the
changes that will happen in when you describe
it here on the page.
Todd
Tuckner
Thanks, Kian for the question. So on, in terms
of the second one, first, the simplification
that we talk about is
continuing in the UK and in the US, but also
in other parts of the world, to continue merging
subsidiaries out
of existence to create and unlock more capital, funding and
tax efficiencies, so that's what we're getting to.
So we're working all through that, you know, we just, of course, the big parent bank and
Swiss bank
mergers, we reparented the IHC, but now there's still a lot of work
that will continue to unlock these
benefits.
So in terms of capital relief, naturally, to the extent that, and this goes a little bit to the question
that was
asked earlier in terms of the repatriation of excess
capital, say in a subsidiary, of course, that is part of the
analysis that we go through as we work through it. But it's,
you know, there are contingencies to the timeline
in terms of what triggers and what the timing
could be to merge some of these
entities out of existence.
In terms of GWM, so, you know what I can
say on the sweep deposits, first of all, advisory
is about a third of
the total, the total that we have in sweeps.
So, just to give – to dimension that a bit, this
is I think that's
probably useful to understand. And then as far as
the pricing it goes, of course, the way
we're, first of all, it's
a function of interest rates because I mentioned
we're going to introduce the new rates in advisory in the
fourth quarter because we have to change
systems and go through some transitional work to
get there.
So, we have to see also where interest rates are. So in terms
of an absolute price that I can’t offer, but what I
can say is that we will for sure price in the value of the
insurance coverage we offer on deposits that benefit
from multiple programs, multiple bank programs and reciprocal programs that we've
invested in and that will
feature into the price of the rate we ultimately offer.
In terms lending balances ex-US the main
driver of that, I mean, you know, clearly we've seen deleveraging
in
a higher interest rate market for outside the US, particular
in APAC for several quarters running. You know,
we're looking forward and seeing some signs of tapering there, but
we continue to see that. As I highlighted,
you know, as rates come down, we do expect that should taper and then
start – we start to see clients re-
leverage. But so, the rate environment is driving some
of that but the other part of it, perhaps the more
significant driver is the financial resource optimization work
we're doing that, you know, a consequence of
that is that loans will roll off our platform, which is one
of the points I highlighted in connection with
the net
new asset report.
Kian Abouhossein, JP Morgan
17
And it's not just on sweep. I know that Morgan
Stanley has confirmed 2% rate to be paid.
Should we look at
similar rates and could you just also remind us of
where we are on the sweep volumes at the moment? Last
number we saw was $35.7 billion?
Todd
Tuckner
Yeah. What I can say Kian is that the number is across to come in a little bit and it's
driven – is in also some of
the comments I made on mix is driving the 2Q
result. So you could assume that number has come
a little bit
lower and all I could say, you know, get anything further on the rate is, you know, as mentioned competitive
dynamics you know will ultimately feature and
how we what – we ultimately settle on a
price – on price for
the sweep deposits.
So, you know, as I said, I gave some views on considerations that we –
that we will factor in. But as far as an
absolute price, you know, that's not at this point something that
we have settled on.
Kian Abouhossein, JP Morgan
Thanks.
Anke Reingen, RBC
Yeah, thank you very much for taking my question – questions. The first one is
just on the Basel IV impact of
the USD 25 billion on the 1st of January 2025.
I guess you said you will give us a
bit more detail with
potentially before year-end. But I mean, you previously talked about a USD 15 billion
net of, yeah, Non-core
rundown. Do you have a – can you give us a
better indication of how the USD 25
billion will actually look on
the 1
st
of January 2025?
And then, sorry, coming back on the NII guidance, just confirming the P&C reiterating
of guidance that's on
the US dollar basis rather than Swiss francs.
And just conceptually, I mean I see, I mean, you now assume
more rate cuts than before, but the guidance is reiterated. Can you
just maybe highlight what the missing
pieces that allows you to reiterate guidance? Thank you
very much.
Todd
Tuckner
Yeah, thanks, Anke. So on Basel III final, you know, as mentioned, we still expect a USD 25 billion impact
is
5% of risk-weighted assets. So in that range,
as you mentioned, we guided in the fourth
quarter in our
investor update that USD 15 billion is in the
core, USD 10 billion’s in non-core I think for now, that split
remains pretty robust in terms of how we're thinking, how we're seeing it, and
naturally will continue to
work down the NCL portfolio to make that
impact lessened over time.
In terms of the NII guidance for P&C, just, you
asked for clarity on – it is in Swiss francs
so we're guiding in
Swiss francs, we'll offer both in the future to sort of help,
as I mentioned in 3Q, we see low – a low-single-
digit down in Swissy, but flat sequentially in USD. And as I mentioned, you know, I think that's a good
outcome that we've had a number of headwinds
that we've been working through, so to reaffirm the
guidance for the full year is also a function
of some management actions that have
been taken, including
some loan repricing actions that have helped.
So those are the drivers of the NII guidance for P&C.
Anke Reingen, RBC
18
Sorry, just to follow up. So on the 1st of January 25, as the 25 – I mean, the 5%
increase in RWA or should it
be lower because some mitigation or NCL run
down has already kicked-in or reduced the impact?
Todd
Tuckner
No, no, the estimate is on the same basis
we gave it in 4Q terms of the impact because
it's mainly FRTB
driven. So for now assume the guidance
remains and as I said, if we have an update
before we go live with it
- of course we'll come back and provide it.
Anke Reingen, RBC
Okay. Thank you very much.
Chis Hallam, Goldman Sachs
Yeah, good morning and thanks for taking my questions. So first, you've
guided for banking to generate
almost twice the baseline revenues by 2026 assuming
supportive markets. So, obviously performance
was
very strong in the second quarter. But then we saw this period of elevated volatility at
the start of August. Has
that changed anything in terms of how
close we are now to supportive markets? And how
would you expect
the recovery to progress through the second half of this year?
And then second question, just on profitability, at the start of the year, you said you'd expect to get to
around 45% of the USD 13 billion gross savings by the
end of 2024, and you've got that by the end of
the
first half. And you also guided for mid-single-digit
underlying return on core tier one this year and mid to
high
for next year. Consensus is at 6% for this year and 9% for next year. But in the first half you're already above
9%. So how should we be thinking now about
the path for underlying return on core tier one through 2024
and 2025?
Sergio P.
Ermotti
Thank you, Chris. I'll take the first question.
So, look, you know, I think, of course, the market environment,
it's quite volatile and there are element of fragility that
we see. But, you know, what is most important for us
is to look through the short-term market dynamics.
And, you know, I can tell you that I'm very confident that
we are building up a very compelling pipeline in
terms of mandate that we win still not
announced and things
that can be then executed in a normalized
market environment.
So, of course, if we see the kind of the volatility
we had in a couple of weeks ago, that would
not be very
helpful for the pipeline. But in general, I'd
stay, you know,
I would say that - positive in respect of our
momentum. So, a good pipeline and good
momentum in winning mandates. But, of course,
it will also
depend on market conditions.
Todd
Tuckner
And Chris, on the second, in terms of a
return on core tier 1 and how it relates to our guidance. So,
you
know, as you mentioned, we initially guided it mid - for mid-single-digits
for 2024 and mid-to-high for 2025.
So naturally, if there's an update, we'll bring it to you and we talk about our 2025 expectations
later this year.
In terms of where we are, you know, as Sergio highlighted in his comments are the
first six months we
generated an underlying return on CET1
of 9.2%. So, obviously we're comfortably ahead
of the target of mid
for 2024.
Amit Goel, Mediobanca
19
Hi. Thank you. Thanks for taking my questions.
So one, just to follow up, just to make sure I also
had some of
the previous guidance correctly. And I think you mentioned the cost of the reprice on sweep to be about
USD 50 million annually. And so, I mean, I guess, given the one third advisory disclosure, that would
imply
only, you know,
just over 40 bps of incremental cost on that
portion and effectively nothing on the rest. So, I
mean I was just kind of curious, I mean, in a way
that you could continue to see outflows,
so I'm wondering
what the capacity is for the group to replace that funding
at similar cost?
And then also just linked to that, if I look then
at the total sweep and the cost of
the sweep, it seems like that
the earnings are pretty similar to what Wealth Management
Americas generates. So I'm just kind of
curious
how you think about Wealth Management Americas
profitability and with some of these headwinds, how
you think you'll get back to that mid-teens operating
margin?
And then secondly, just curious on the parent, you know, is there any scope to shift exposure from foreign
participations to domestic in addition to
capital repatriation? And, you know, whether that can be reflected in
participation values and, you know, if there is potentially will change coming.
Thank you.
Todd
Tuckner
Thanks, Amit. Yeah, in terms of the second one, shifting exposure domestically, you know, whether that
helps, it's way too early to speculate on how
we're going to address and what actions we take. We don't
know what the standards are. So, and where they'll move to mean –
where the standards will move,
assuming they move. And so to speculate
about what mitigating actions might
be available to us is way too
early.
Terms
of sweeps, yeah, I disclosed that the impact
on pre-tax profit is expected be around USD 50 million
annualized in the US Wealth Business. You know, I did say that that's net of offsetting factors. So, that
includes an array of banking initiatives and expense
programs across various categories. So, there, I wouldn't
take the USD 50 million as gross income, but actually, as I said, it is a net impact.
And I think, look, you know,
I saw interesting that you asked the question and
then, you know, lead to how we're going to address, you
know, the pre-tax margin issues. You know,
we – nothing has changed on that.
We're, you know, we're focused on that, we know we have to do. The sweep deposit
issue, you know, is a
modest hit on that, of course, because it's
something we're saying is adverse to PBT. We think it's
manageable and now we're getting on with the work
of improving the margins on the basis of how we
described that in the past. So, we know we
have to do there and we're taking steps to achieve that.
Benjamin Goy, Deutsche Bank
Hi, good morning. Two questions, please. So the first one on GWM in particular, America, the cost/income
ratio remains above 90% and it was better during
low interest rate times. So just wondering with
the mix
shift from NII, and NII falling [indiscernible]
most likely, you see upside to year-end 2026 cost/income ratio
improvement in target.
And then secondly on the capital side, you
obviously have the group guiding for 14% CET1,
but you see the
12.5% more the binding constraint and that's the
first half of the question.
The second, with Switzerland
being the only geography introducing FRTB and not
delaying it, do you think that's the
final piece of the
puzzle in terms of higher capital requirements for you?
Thank you.
Sergio P.
Ermotti
Let me take the second part of the question.
Of course, you know, with the 14% guidance we have right
now it stays as it is, and the 12.5%you mentioned
it look-through fully applied 2030 at current requirements,
20
we will see exactly how things develop in the next
few quarters in terms of future requirements. From FRTB
standpoint of view, of course, as you mentioned, Switzerland will
introduce that on January 1. It will be a
short-term competitive disadvantage, we don't
believe it's – we believe it's manageable short-term.
Of course, this, should other jurisdictions not
converge, not to converge to Basel III full
implementation over
the next couple of years then, of course, that
would be – it will be more problematic and we would need
to
think about how to address this matter. So, we remain confident that we will be able to have a level playing
field in how we operate and compete globally. But it remains to be seen.
Todd
Tuckner
And Benjamin, here's how we think about the – your
cost/income ratio question for GWM. You know, we're
– we have a look through cost to income ratio presently
of around 80%. You know,
naturally when we plan
the USD 13 billion of gross cost saves and the
less than 70% cost income ratio, GWM factors
in quite
prominently in that piece of work.
And that's why, you know, I've highlighted that the cost income ratio will be benefited by the work that
just
going to get going in the next quarter or two,
which is the client account migration work
and platform
consolidation starting in APAC and parts of Europe before the Swiss booking center.
That will drive significant cost down and ultimately, you know, which is why I believe that Wealth and P&C
will benefit significantly in the latter half of
the integration work. So in terms of where we
get our cost
income ratio, it will – GWM's cost to income ratio
in the end will be a big contributor to the
group meeting
its target of less than 70% by the end of 2026.
Benjamin Goy, Deutsche Bank
Thanks for that. This was in particular on the
Americas for GWM Americas, but you probably
won't see much
of a cost save benefit, but correct me if I'm wrong. Yeah, indeed from the 90 – from the 90% right now,
more towards the 85%, accelerate with the different revenue mix?
Todd
Tuckner
Question was on the Americas, sorry I didn’t
hear it. Look, as I said also to the before and
I've said previously,
we're working towards the mid-teens profit margin over the next
couple of years. That's where, you know,
we know we have to narrow the gap where we are, that's where we are working towards.
And that also
features into the, you know, the less than 70% cost/income ratio by the end
of 2026, getting to that level.
So, you know, nothing that I've guided to today has changed any
of that. We're very focused on taking the
steps to achieve that by that in that timeframe.
Benjamin Goy, Deutsche Bank
Thank you.
Tom
Hallet, KBW
Hi. Thanks for taking my questions. Just
– what do you assume in terms of loan and deposit
growth in the
Swiss business NII guide and your GWM growth in
the second half of the year? And then
secondly, how do
you see deposit mix shift and deposit betas evolving
within that guide as well? Thank you.
Todd
Tuckner
21
Yeah, thanks, Tom.
So in terms of – in terms of volumes in each
of the businesses, you know, I expect loans
in both of the businesses through the end of 2024
to come slightly in, largely because of
the balance sheet
work that I highlighted in my comments. So,
I think in both cases, loans would come in.
I see deposits as well
through on the GWM side as well towards the end of the
year.
I mean, roughly flat at this point, I see P&C growing deposits
whether, you know,
through the rest of this
year but certainly as we look out over the longer
term. So, I would say a little bit of
downward pressure in
terms of loans in large part just given the balance
sheet work that we're doing.
On a deposit side, I see more of sort of flat to
growing in the near to mid-term in terms of the balance
sheet.
And in terms of, deposit mix shifts look, I think
in the end we're, you know, we've been seeing as many
banks have the effects of deposit mix and cash sorting
and rotation for some period of time, you know, as
rates start to come down, we expect that the
cash sorting will continue to taper and it'll
be less of an impact
in terms of the NII.
And, you know, that's a little bit of what we're seeing in our outlook is just
given the fact that we expect and
are modeling rates coming in, that we are seeing sort of
in a way, the last vestige of mix shifts, though, as
while rates remain a bit higher. So that's how we see the deposit mix shift evolving.
Tom
Hallet, KBW
Thank you.
Sergio P.
Ermotti
Okay, there are
no more questions. Thank you all for calling in and
your questions. And see you in end of
October for the Q3 results. Thank you.
22
Cautionary statement regarding
forward-looking statements |
This document
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 its 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 UBS’s performance and ability
to achieve its 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
elevated
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
its 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 its
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 and UBS 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
its reputation
and the
additional consequences that
this may
have on
its
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. UBS’s business and financial performance could be affected by other factors identified in its 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 UBS Group AG and UBS AG Annual Reports on Form 20-
F for the year
ended 31 December 2023. 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.
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
Date:
August 15, 2024