UBS reports 2004 net profit of CHF 8,089 million and fourth quarter net profit of CHF 2,021 million
- 2004 net profit of CHF 8,089 million, financial businesses contributed CHF 8,044 million -- a record result, up 29% from 2003 - Revenues grew in all categories, pushing the 2004 cost/income ratio for the financial businesses down to 72.6% or 70.2% excluding goodwill - RoE for 2004 was 24.7% or 27.7% excluding goodwill - 2004 EPS of CHF 7.68, up 37% from 2003 or up 34% excluding goodwill - Proposed dividend of CHF 3.00 per share, up 15% from previous year - Net new money of CHF 88.9 billion for the year, with strong CHF 59.4 billion from wealth management businesses worldwide - Fourth quarter net profit of CHF 2,021 million, financial businesses contributed CHF 1,993 million -- the best ever fourth quarter.
UBS (including Industrial Holdings)
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CHF million, except where indicated
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CHF million, except where indicated
UBS reports 2004 net profit of CHF 8,089 million. This includes the fully consolidated results of Motor-Columbus 1, an industrial holding which contributed net profit of CHF 45 million. Excluding this participation, UBS's financial businesses reported net profit of CHF 8,044 million, up 29% from 2003. Before goodwill and the sale of Wealth Management USA's clearing subsidiary in second quarter 2003, net profit rose by 24%.
"This is the best annual result in UBS's history. We believe it reflects our strong emphasis on growth," said Peter Wuffli, Chief Executive Officer.
Operating income grew in all categories despite the falling US dollar. Asset-based revenues showed particular strength, reflecting improved market valuations as well as strong inflows of net new money. Overall, UBS attracted CHF 88.9 billion in net new money in 2004, up 29% from CHF 69.1 billion in 2003. As a result, total invested assets rose to CHF 2,250 billion.
2004 saw substantial increases in private client trading transaction fees as well as corporate finance and underwriting fees. Fee and commission income contributed 52% to the year's total operating income. Trading income also rose, as improved market conditions boosted opportunities, particularly in the first and fourth quarters. Results in the private equity business improved as well, showing positive revenues for the first time in three years on higher divestment gains and lower writedowns.
In full-year 2004, UBS realized a net credit recovery of CHF 276 million, compared to a credit loss expense of CHF 72 million in 2003.
Costs remained under strict control, and increased at a slower pace than business growth. Performance-related compensation rose in line with revenues, representing approximately 49% of personnel expenses (up from 44% in 2003). Increased legal provisions and operational risk costs drove general and administrative expenses higher.
Fourth quarter results
In fourth quarter 2004, UBS reported net profit of CHF 2,021 million, including a contribution of CHF 28 million from its industrial holdings. Net profit for the financial businesses stood at CHF 1,993 million -- the best-ever fourth quarter performance. Despite the drop of the US dollar against the Swiss franc through 2004, the result was up 10% from the same quarter a year earlier. A 7% rise in total operating income outpaced a 4% increase in operating expenses. Trading-related businesses reported strong results, reflecting improved market activity levels following the outcome of the US elections in November. Trading revenues in equities (up 25%), fixed income (up 10%) and foreign exchange (up 13%) all ended the year strong. Portfolio management fees were very solid and investment fund fees reached a record level, reflecting higher market valuations. A strong contribution from the investment banking business helped drive advisory revenues higher.
The cost/income ratio for the financial businesses stood at 72.7%. Before goodwill, it stood at 70.4%, improving from 73.4% (70.8% before goodwill) in the same period last year.
Headcount development in 2004
Headcount in UBS's financial businesses was 67,424 on 31 December 2004, up 1,495 from 65,929 a year ago. The increase was driven by the expansion of UBS's wealth management and securities businesses across the globe.
Investing in growth, new share buyback program
In 2004, UBS announced several acquisitions -- such as the purchase of Charles Schwab SoundView Capital Markets, the Capital Markets Division of Charles Schwab Corp. which has taken UBS to the number one ranking in NASDAQ securities trading. In addition, UBS announced the acquisition of a number of wealth management businesses. In total, these have added around CHF 40 billion in invested assets to UBS in key markets. For these deals, UBS paid a total of approximately CHF 1 billion.
In its current share buyback program, which ends on 5 March 2005, UBS has bought back a total value of approximately CHF 3.5 billion in its own shares. Subject to the approval of the Annual General Meeting, all shares repurchased under this program will be canceled and cannot be reissued. Peter Wuffli said: "We are very pleased with the acquisitions we have recently made. We remain committed to returning cash to shareholders through share buybacks, but seeking out attractive opportunities for re-investing in our growth businesses will always be our first priority."
The Board of Directors has decided to launch a new program with a maximum buyback limit of CHF 5 billion starting on 5 March 2005 and running until 7 March 2006. This will be UBS's seventh consecutive annual share buyback program.
Dividend of CHF 3.00 per share
For the 2004 financial year, the Board of Directors will recommend a dividend of CHF 3.00 per share to the Annual General Meeting (AGM) on 21 April 2005. This is an increase of 15% from the 2003 dividend.
A record result is always challenging to beat. As every year, the investment banking and securities businesses will have to contend with the somewhat unpredictable rise and fall of the world's financial markets. But 2004 showed that UBS's wealth and asset management business can provide both growth momentum and earnings quality even if trading conditions fluctuate. "We will continue re-investing in our growth businesses and expect 2005 to be the next exciting step on a journey we believe will be very rewarding for our long-term investors," said Clive Standish, Chief Financial Officer.
Return on equity for 2004 was 24.7%, compared to 17.8% a year earlier. Basic earnings per share were CHF 7.68 in 2004, compared to CHF 5.59 in 2003. The cost/income ratio was 72.6%, compared to 75.6% a year earlier.
Performance against UBS financial targets in 2004 (pre-goodwill and adjusted for significant financial events)
UBS sets its financial targets and evaluates performance in terms of adjusted results, excluding significant financial events2 and excluding the amortization of goodwill and other intangible assets.
UBS's performance against financial targets shows:
Return on equity in 2004 was 27.7%, up from 20.5% a year earlier and well above the target range of 15 to 20%. The increase, exceeding net profit growth, reflects the combined impact of the share buyback program and dividend outpacing retained earnings.
Basic earnings per share were CHF 8.60 in 2004, an increase of CHF 2.17 or 34% from 2003, driven by the increase in net profit as well as the impact of share repurchases.
The cost/income ratio for UBS's financial businesses was 70.2% in 2004, an improvement from 73.2% in 2003, and the lowest level since PaineWebber became part of UBS in 2000.
Year to date
as reported 1
before goodwill and adjusted for significant financial events 2
For the quarter ended
Basic EPS (CHF)
as reported 3
before goodwill and adjusted for significant financial events 4
Cost / income ratio of the Financial Businesses (%)5
as reported 6
before goodwill and adjusted for significant financial events 7
Net new money, wealth management businesses (CHF billion)8
Wealth Management USA
Wealth Management & Business Banking
Despite the weakening of the US dollar against the Swiss franc, Wealth Management's full-year 2004 pre-tax profit, at CHF 3,435 million, was up 32% from 2003. This increase reflects the growth momentum in the business and the recovery in major financial markets that started in mid-2003, driving a 13% increase in revenues through higher asset-based fees. Rising interest income, a reflection of the expansion of margin lending activities, also bolstered revenues. At the same time, expenses, up just 2% in 2004 from 2003, were kept under tight control. Net new money inflows for the year totaled CHF 42.3 billion, up 42% from CHF 29.7 billion in 2003. Gains were reported in all geographical areas, especially from Asian clients. The CHF 13.7 billion inflow into the European wealth management business was again particularly strong.
In fourth quarter 2004, profit before tax stood at CHF 831 million, 3% lower than in third quarter. Higher non-personnel expenses, related to continued business growth, coincided with virtually flat income. The gross margin on invested assets was 99 basis points, down 2 basis points from the previous quarter. This was partially due to the first-time booking of invested assets acquired with Sauerborn Trust at the end of fourth quarter 2004 (CHF 9 billion) without corresponding revenues. Excluding this effect, the margin declined by 1 basis point.
Business Banking Switzerland reported a pre-tax profit of CHF 2,045 million for full-year 2004, down 5% from the record result achieved in 2003. It was achieved despite a CHF 184 million fall in income, driven mainly by lower interest income, and shows the continued tight management of costs. Lower credit loss expenses reflected the structural improvement in the domestic loan portfolio in recent years.
During the course of 2004, CHF 7 billion in assets were transferred from the Business Banking Switzerland unit to the Wealth Management unit, reflecting the increasing needs of clients through their life cycle.
Fourth quarter 2004 pre-tax profit was CHF 510 million, down 1% from third quarter 2004, mainly due to lower non-interest income. The third quarter result benefited from a gain on the divestment of the Noga Hilton hotel.
Global Asset Management
Global Asset Management reported a pre-tax profit of CHF 544 million for full-year 2004, up 64% from CHF 332 million in 2003. The increase was driven by higher operating income, which rose 16%, reflecting strong net new money inflows, a continuing change in asset mix towards higher-margin products and a rise in market valuations, resulting in increased asset levels and revenues. This was accompanied by continued cost reductions.
For full-year 2004, net new money inflows in the institutional business stood at CHF 23.7 billion, almost doubling from CHF 12.7 billion a year earlier. Strong inflows were recorded into alternative and quantitative investments, equity and fixed income mandates. The wholesale intermediary fund business recorded a net new money outflow of CHF 4.5 billion compared to an outflow of CHF 5.0 billion in 2003. Inflows of CHF 16.1 billion into fixed income, asset allocation and equity funds were more than offset by money market outflows of CHF 20.6 billion mainly transfers into UBS's US bank.
Invested assets for the Business Group totaled CHF 601 billion on 31 December 2004, unchanged from 30 September but up from CHF 574 billion at the end of 2003.
In fourth quarter 2004, Global Asset Management's pre-tax profit was CHF 164 million, up CHF 59 million from third quarter 2004. The increase was largely due to higher performance fees and lower operating expenses, with the previous quarter affected by provisions relating to a restructuring in the Americas.
The Investment Bank recorded a pre-tax profit of CHF 4,540 million for full-year 2004, up 18% from a year earlier, and at its highest level since 2000, reflecting revenue growth across all business areas. In particular, the fixed income, rates and currencies business posted record income, up 6% from 2003, while the equities area reported a 21% increase in revenues. At the same time, costs increased as the businesses continued to expand, and specific operational provisions also contributed to the rise. In full-year 2004, the compensation ratio fell to 51% from 52% in 2003, reflecting the completion of the strategic hiring program in investment banking.
Pre-tax profit in fourth quarter 2004 stood at CHF 1,229 million, up 3% from the same period a year earlier and 72% higher than third quarter 2004, reflecting the Investment Bank's ability to take advantage of the rebound in market conditions and volumes following the US elections.
In the equities area both client commissions and income from proprietary trading rose in line with higher market activity, and revenues from prime brokerage services grew significantly.
Fixed income, rates and currencies revenues were up from fourth quarter a year earlier driven by strong performance in foreign exchange, particularly in derivatives trading. Central bank rates action stimulated volatility and market activity during the quarter, reflected in both customer trading flows and trading opportunities.
Investment banking revenues were slightly down from fourth quarter 2003 as a result of the US dollar's fall against major currencies and higher credit hedging costs for the investment banking loan book. Excluding these negative effects, investment banking revenues increased 22% from their strong performance a year earlier, driven by significant growth in advisory revenues, particularly in the Americas and Europe.
The private equity business posted revenues of negative CHF 4 million in fourth quarter 2004 because of lower levels of exits when compared to fourth quarter 2003.
Market risk for the Investment Bank, as measured by the average 10-day 99% VaR, was CHF 358 million in fourth quarter 2004, down from the third quarter 2004 average of CHF 376 million. Interest rate exposures continued to be the main contributor to VaR.
Wealth Management USA
The Wealth Management USA business reported a pre-tax profit of CHF 179 million for full-year 2004, compared to a loss of CHF 5 million in 2003. The 2003 results include a pre-tax gain of CHF 161 million from the sale of Correspondent Services Corporation (CSC) in second quarter 2003.
After the exclusion of the CSC gain and before acquisition costs (goodwill amortization, net goodwill funding and retention payments), operational performance showed profits of CHF 762 million in 2004 and CHF 664 million in 2003. On the same basis, but in US dollars, the operating result was 24% higher in 2004 than in 2003. This represents the best result since PaineWebber became part of UBS, reflecting record recurring fees and increased net interest revenue benefiting from the first full-year impact of UBS Bank USA, whose loan book grew from USD 4.5 billion at the end of 2003 to USD 7.2 billion at 31 December 2004.
In fourth quarter 2004, Wealth Management USA reported a pre-tax profit of CHF 77 million, compared to CHF 43 million in third quarter. Before acquisition costs, pre-tax profit increased 11%, or 20% in US dollar terms.
Net new money showed renewed strength, with inflows of CHF 6.8 billion in fourth quarter, up from CHF 5.3 billion in the previous quarter. The result reflects the positive impact of recent hiring in the advisory force as well as the improved market environment.
In full-year 2004, net new money totaled CHF 17.1 billion, down from CHF 21.1 billion a year earlier, reflecting a slow asset-gathering performance at the beginning of the year as well as the US dollar's weakening against the Swiss franc.
Zurich/Basel, 8 February 2005
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