UBS's fourth-quarter 2013 results
UBS successfully executes strategy, increasing profit and shareholder returns
FY adjusted1 profit before tax CHF 4.1 billion, up 44% versus prior year
FY net profit attributable to UBS shareholders CHF 3.2 billion; diluted EPS CHF 0.83
Wealth management businesses’ FY net new money increased to CHF 54 billion
Fully applied CET12 ratio up 300 bps in 2013 to 12.8%, ahead of 2013 target
Fully applied RWA2 reduced to CHF 225 billion in 2013, ahead of 2013 target
Dividend increase of 67% to CHF 0.25 per share for 2013
Zurich/Basel, 4 February 2014 – UBS concluded the year with a solid fourth-quarter performance despite continued market volatility and lower client activity towards the end of the quarter. All of UBS’s business divisions posted strong results for the year, demonstrating that its model has the flexibility to adapt and perform well in a variety of market conditions. This enabled the firm to deliver an increased adjusted1 full-year profit before tax of CHF 4.1 billion, up 44% compared with the prior year. On a reported basis, profit before tax was CHF 3.3 billion. The result included charges for provisions of CHF 1.7 billion for litigation, regulatory and similar matters, and a net tax benefit for the year of CHF 110 million.
In 2013, UBS continued to strengthen its industry-leading capital ratios as it successfully lowered risk-weighted assets (RWA). This included a 38% reduction of its Non-core and Legacy Portfolio fully applied RWA2. UBS and FINMA have mutually agreed that, effective on 31 December 2013, a supplemental analysis will be used to calculate the incremental operational risk capital required to be held for litigation, regulatory and similar matters and other contingent liabilities. The incremental RWA calculated based upon this supplemental analysis has replaced the temporary operational RWA add-on discussed in our report for the third quarter of 2013. The incremental RWA calculated based upon this supplemental analysis as of 31 December 2013 was CHF 22.5 billion, approximately CHF 5 billion less than the incremental RWA determined as of 1 October 2013 under the previously disclosed 50% operational risk add-on. UBS’s fully applied common equity tier 1 (CET1) ratio increased 300 basis points to 12.8% in 2013 and UBS remains the best-capitalized bank in its peer group. Clients entrusted UBS with net new money of CHF 54 billion into its wealth management businesses, an increase of 14% on the prior year.
As a result of these achievements and in line with its stated objective of paying progressive capital returns to shareholders, the Board of Directors will propose a 67% increase in the firm’s dividend for shareholders to CHF 0.25 per share for 2013. UBS also remains committed to paying out at least 50% of profits after achieving its fully applied CET1 ratio of 13%.
Commenting on UBS’s full-year and fourth-quarter results, Group Chief Executive Officer Sergio
P. Ermotti said, "A year ago, we said we would further adapt our business to better serve clients, reduce risk, deliver more sustainable performance and enhance shareholder returns. I am pleased to report that in 2013 we accomplished all those goals. We finished the year ahead of the majority of our performance targets and will continue to execute our strategy in a disciplined manner in order to ensure the firm’s long-term success."
Full-year Group results
- Adjusted1 Group profit before tax CHF 4.1 billion
- Net profit attributable to UBS shareholders CHF 3.2 billion; diluted earnings per share CHF 0.83
- Adjusted1 group operating income CHF 27.8 billion
Full-year Group highlights
- Fully applied CET12 ratio up 300 basis points to 12.8%, above 2013 target of 11.5%
- Continued significant deleveraging of Group balance sheet, down CHF 250 billion to CHF 1,010 billion
- Phase-in leverage ratio up 110 basis points to 4.7%; leverage, funding and liquidity ratios all remain comfortably above regulatory requirements
- Fully applied RWA2 reduced by CHF 33 billion to CHF 225 billion, mainly due to disposals in Non-core and Legacy Portfolio; 2015 target already met
- Gross cost savings of CHF 2.2 billion achieved since the first half of 2011
- All business divisions were profitable in every quarter
Full-year business division results
- Wealth Management adjusted1 profit before tax up 17% to CHF 2.4 billion; net new money up CHF 9.6 billion to CHF 35.9 billion due to strong inflows, particularly from Asia Pacific and ultra high net worth clients globally, resulting in net new money growth within target at 4.4%
- Wealth Management Americas achieved record adjusted1 profit before tax of USD 991 million, reaching its ambitious target of an annual profit of USD 1 billion, and strong net new money of USD 19.0 billion; net new money growth, gross margin and adjusted1 cost/income ratio all within target
- Retail & Corporate delivered stable adjusted1 profit before tax of CHF 1.5 billion; net new business volume growth and net interest margin within target
- Global Asset Management increased adjusted1 profit before tax by 8% to CHF 585 million; gross margin stable at 33 basis points and within target
- Investment Bank delivered adjusted1 profit before tax of CHF 2.5 billion; adjusted1 return on attributed equity of 30.6% was significantly ahead of its greater than 15% target
Full-year business division highlights
- UBS recognized as the largest and fastest-growing large-scale wealth manager in the world3
- UBS’s wealth management businesses increased combined full-year adjusted1 profit before tax by 25% to CHF 3.3 billion; net new money of CHF 53.5 billion, up CHF 6.6 billion
- Investment Bank performed strongly, operating within tight RWA and funded balance sheet targets
- Retail & Corporate continued to perform strongly, growing client deposits to levels higher than at the end of 2007
Fourth quarter results
- Adjusted4 profit before tax CHF 755 million
- Net profit attributable to UBS shareholders CHF 917 million; diluted earnings per share CHF 0.24
- Fully applied CET12 ratio increased 90 basis points to 12.8%
- Fully applied RWA2 within target at CHF 225 billion
- Wealth Management adjusted4 profit before tax CHF 512 million; gross margin stable at 85 basis points; net new money at CHF 5.8 billion the best for any fourth quarter since 2007 due to strong inflows from Asia Pacific and from ultra high net worth clients globally
- Wealth Management Americas adjusted4 profit before tax up 22% to USD 283 million; net new money more than doubled to USD 4.9 billion; net new money growth, gross margin and adjusted4 cost/income ratio all within target
- Retail & Corporate adjusted4 profit before tax CHF 344 million; net new business volume growth of 3.8%, at the upper end of the target range; net interest margin increased 3 basis points to 157 basis points, also within target
- Global Asset Management adjusted4 profit before tax up 10% to CHF 143 million; gross margin within target, up 2 basis points to 33 basis points on higher performance fees
- Investment Bank adjusted4 profit before tax up 15% to CHF 386 million; advisory and equity capital markets revenues significantly higher; equities business posted best fourth quarter performance since 2010; fully applied RWA2 within target at CHF 62 billion; adjusted4 return on attributed equity at 19.8%, once again well ahead of its greater than 15% target; adjusted4 cost/income ratio improved to 79.2% and was within target
Supplemental operational risk capital analysis mutually agreed with FINMA
During the fourth quarter of 2013 and January of 2014, UBS and the Swiss Financial Market Supervisory Authority (FINMA) reviewed the temporary operational risk-related RWA (risk-weighted assets) add-on that became effective on 1 October 2013. UBS and FINMA have mutually agreed that, effective on 31 December 2013, a supplemental analysis will be used to calculate the incremental operational risk capital required to be held for litigation, regulatory and similar matters and other contingent liabilities. The incremental RWA calculated based upon this supplemental analysis has replaced the temporary operational RWA add-on discussed in our report for the third quarter of 2013, and is reflected in the 31 December 2013 RWA and capital ratio information in our report for the fourth quarter of 2013. The incremental RWA calculated based upon this supplemental analysis as of 31 December 2013 was CHF 22.5 billion, approximately CHF 5 billion less than the incremental RWA determined as of 1 October 2013 under the previously disclosed 50% operational risk add-on. Future developments in and the ultimate elimination of the incremental RWA attributable to the supplemental analysis will depend on provisions charged to earnings for litigation, regulatory and similar matters and other contingent liabilities and on developments in these matters.
Refinements to compensation model for 2013
Last year we announced significant changes to our compensation framework for the financial year 2012. These changes increased the focus on long-term performance by reinforcing a culture of accountability aligned to our goal of creating sustainable attractive returns to shareholders. An important objective of our framework is to retain and attract the best talent in the industry. In response to feedback from shareholders and the competitive environment, we made some refinements to our compensation framework for the financial year 2013. Most notably we raised the threshold for compensation deferral and introduced a range of deferral rates as opposed to the previously flat rate. For the Group Executive Board (GEB), among other changes, we increased the Basel III CET1 ratio trigger that leads to the forfeiture of DCCP awards from 7% to 10%. Our 2012 performance award pool was significantly affected by the LIBOR issue, negatively impacting awards in the Investment Bank, some areas of the Corporate Center and the GEB. In 2013, we finished a transformational year ahead of the majority of our strategic and financial targets. We normalized performance award levels in areas impacted negatively last year and reduced gaps to market pay in light of our absolute and relative achievements. This leads to a 28% rise in the overall performance award pool for 2013. For shareholders, however, the cost of performance awards remains flat year on year on an accounting basis (IFRS).
Net profit attributable to UBS shareholders for the fourth quarter of 2013 was CHF 917 million
Net profit attributable to UBS shareholders for the fourth quarter of 2013 was CHF 917 million compared with CHF 577 million in the third quarter of 2013. Operating profit before tax was CHF 449 million compared with CHF 356 million in the prior quarter. Operating income increased by CHF 46 million, mainly due to an increase in net fee and commission income, primarily in the Investment Bank, as well as higher net interest and trading revenues, partly offset by lower other income. Operating expenses decreased by CHF 48 million, largely as a result of a reduction in charges for provisions for litigation, regulatory and similar matters, partly offset by increases in other non-personnel expenses and, to a lesser extent, personnel expenses. Furthermore, we recorded a net tax benefit of CHF 470 million compared with a net tax benefit of CHF 222 million in the prior quarter.
Wealth Management’s profit before tax was CHF 471 million in the fourth quarter of 2013, a decrease of CHF 84 million compared with CHF 555 million in the third quarter. Adjusted for restructuring charges, profit before tax decreased to CHF 512 million from CHF 617 million. Operating income increased by CHF 22 million to CHF 1,859 million, mainly reflecting higher net fee and commission income. Operating expenses increased by CHF 107 million to CHF 1,389 million as lower charges for provisions for litigation, regulatory and similar matters were more than offset by seasonally higher other general and administrative expenses and higher variable compensation expenses. The gross margin on invested assets was stable at 85 basis points. Net new money was CHF 5.8 billion compared with CHF 5.0 billion in the prior quarter.
Wealth Management Americas reported a record quarterly profit before tax of USD 254 million in the fourth quarter of 2013 compared with a profit of USD 218 million in the third quarter. Adjusted for restructuring charges, profit before tax increased to USD 283 million from USD 232 million. The reported result reflected a 6% increase in operating income due to higher recurring income and higher transaction-based revenue. This was partly offset by a 4% increase in operating expenses, mainly due to higher financial advisor compensation and restructuring charges. Net new money inflows increased to USD 4.9 billion from USD 2.1 billion in the prior quarter, mainly due to higher inflows from financial advisors employed with UBS for more than one year.
Retail & Corporate’s profit before tax was CHF 332 million in the fourth quarter of 2013 compared with CHF 402 million in the third quarter. Adjusted for restructuring charges, profit before tax decreased to CHF 344 million from CHF 417 million. Operating income declined by CHF 27 million, mainly due to higher credit loss expenses, and adjusted operating expenses increased by CHF 46 million, mainly due to higher charges for provisions for litigation, regulatory and similar matters. The annualized net new business volume growth rate was 3.8%.
Global Asset Management’s profit before tax in the fourth quarter of 2013 was CHF 130 million compared with CHF 118 million in the third quarter, with the increase primarily due to higher performance fees, partly offset by higher operating expenses. Adjusted for restructuring charges, profit before tax was CHF 143 million compared with CHF 130 million. Excluding money market flows, net new money outflows were CHF 1.5 billion from third parties and CHF 3.2 billion from clients of UBS’s wealth management businesses.
The Investment Bank recorded a profit before tax of CHF 297 million in the fourth quarter of 2013 compared with CHF 251 million in the third quarter. Adjusted for restructuring charges, profit before tax was CHF 386 million compared with CHF 335 million. This increase was mainly due to higher revenues in Corporate Client Solutions, partly offset by an increase in operating expenses. Fully applied Basel III risk-weighted assets (RWA) increased to CHF 62 billion from CHF 59 billion. The increase was primarily due to the incremental RWA resulting from the supplemental operational risk capital analysis mutually agreed to by UBS and FINMA, partly offset by reductions in credit risk and market risk RWA.
Corporate Center – Core Functions recorded a loss before tax of CHF 565 million in the fourth quarter of 2013 compared with a loss of CHF 479 million in the third quarter. The fourth quarter loss was mainly due to treasury income remaining in Corporate Center – Core Functions of negative CHF 343 million, an own credit loss of CHF 94 million and operating expenses remaining in Corporate Center – Core Functions of CHF 200 million. These negative effects were partly offset by gains of CHF 61 million on sales of real estate.
Corporate Center – Non-core and Legacy Portfolio recorded a loss before tax of CHF 446 million in the fourth quarter of 2013 compared with a loss of CHF 693 million in the third quarter. Total operating expenses were CHF 317 million and included a charge of CHF 68 million for the annual UK bank levy. Operating income was negative CHF 130 million, mainly due to a negative debit valuation adjustment (DVA) as well as unwind and novation activity in Non-core. Fully applied risk-weighted assets (RWA) decreased by CHF 5 billion to CHF 64 billion as a CHF 12 billion combined reduction in credit risk and market risk RWA was partly offset by a CHF 7 billion increase in operational risk RWA, mainly resulting from the supplemental operational risk capital analysis mutually agreed to by UBS and FINMA.
Balance sheet: As of 31 December 2013, our balance sheet assets stood at CHF 1,010 billion, a decrease of CHF 39 billion from 30 September 2013, primarily due to a continued reduction in positive replacement values in Non-core and Legacy Portfolio. Funded assets, which represent total assets excluding positive replacement values and collateral delivered against over-the-counter (OTC) derivatives, decreased by CHF 3 billion to CHF 739 billion, mainly due to reductions in lending assets as well as currency effects, partly offset by increases in both collateral trading and other assets. Excluding currency effects, funded assets increased by approximately CHF 4 billion.
Capital management: Our phase-in common equity tier 1 (CET1) ratio 1 stood at 18.5% as of 31 December 2013, an improvement of 1.0 percentage point from 30 September 2013. Phase-in CET1 capital increased by CHF 3.2 billion to CHF 42.2 billion, mainly due to the exercise of our option to acquire the SNB StabFund’s equity and the fourth quarter net profit. Phase-in risk-weighted assets (RWA) rose by CHF 6.3 billion to CHF 228.6 billion. This increase primarily reflects incremental RWA of CHF 22.5 billion resulting from the supplemental operational risk capital analysis mutually agreed to by UBS and FINMA, which was partly offset by reductions in credit and market risk RWA, mainly due to our continued efforts to reduce exposures within our Non-core and Legacy Portfolio. On a fully applied basis, our CET1 ratio improved 0.9 percentage points to 12.8% and we exceeded our target of 11.5% for 2013. Our Swiss SRB leverage ratio improved 49 basis points to 4.65% on a phase-in basis, partly due to the exercise of the SNB StabFund option, which contributed 23 basis points to the increase.
Invested assets: Group invested assets stood at CHF 2,390 billion at the end of the fourth quarter, an increase of CHF 51 billion on the prior quarter. Invested assets in Wealth Management increased by CHF 15 billion to CHF 886 billion as of 31 December 2013, supported by positive market performance of CHF 12 billion and net new money inflows of CHF 6 billion, partly offset by negative currency translation effects of CHF 2 billion. Invested assets in Wealth Management Americas increased by CHF 34 billion to CHF 865 billion as of 31 December 2013. In US dollar terms, invested assets increased by USD 51 billion to USD 970 billion, reflecting positive market performance of USD 46 billion as well as continued net new money inflows. Invested assets in Global Asset Management increased by CHF 3 billion to CHF 583 billion as of 31 December 2013. Positive market performance of CHF 16 billion was partly offset by net new money outflows of CHF 7 billion and negative currency translation effects of CHF 6 billion.
Outlook – At the start of the first quarter of 2014, many of the underlying challenges and geopolitical issues that we have previously highlighted remain. The continued absence of sustained and credible improvements to unresolved issues in Europe, continuing US fiscal and monetary policy issues, emerging markets fragility and the mixed outlook for global growth would make improvements in prevailing market conditions unlikely. This could cause traditional improvements in first quarter activity levels and trading volumes to fail to materialize fully and would generate headwinds for revenue growth, net interest margin and net new money. Despite possible headwinds, we expect that our wealth management businesses will continue to attract net new money, reflecting new and existing clients’ steadfast trust in the firm. We will continue to execute on our strategy in order to ensure the firm’s long-term success and to deliver sustainable returns for our shareholders.
1 Unless otherwise indicated, 2013 "adjusted" figures exclude each of the following items, to the extent applicable, on a Group and business division level: an own credit loss of CHF 283 million, gains on sales of real estate of CHF 288 million, a net loss of CHF 167 million related to the buyback of debt in a public tender offer, net restructuring charges of CHF 772 million, a gain on disposal of Global Asset Management’s Canadian domestic business of CHF 34 million and a net gain on sale of remaining proprietary trading business of CHF 31 million. For 2012 the items we excluded were an own credit loss of CHF 2,202 million, gains on sales of real estate of CHF 112 million, net restructuring charges of CHF 371 million, a credit related to changes to the Swiss pension plan of CHF 730 million, a credit related changes to a retiree benefit plan in the US of CHF 116 million and an impairment of goodwill and other non-financial assets of CHF 3,064 million. 2 All capital information is based on the Basel III framework as applicable for Swiss systemically relevant banks. 3 Scorpio Partnership Private Banking Benchmark 2013 (2012 results) – banks with assets under management of over USD 500 billion. 4 Unless otherwise indicated, fourth-quarter "adjusted" figures exclude each of the following items, to the extent applicable, on a Group and business division level: own credit loss of CHF 94 million, gains on sales of real estate of CHF 61 million, a net loss of CHF 75 million related to the buyback of debt in a public tender offer and net restructuring charges of CHF 198 million. For the third quarter the items we excluded were an own credit loss of CHF 147 million, gains on sales of real estate of CHF 207 million and net restructuring charges of CHF 188 million.
UBS’s fourth quarter 2013 report, shareholders’ letter, media release and slide presentation will be available from 06.45 CET on Tuesday 4 February 2014 at www.ubs.com/quarterlyreporting.
UBS will hold the presentation of its fourth quarter 2013 results on Tuesday 4 February 2014. The results will be presented by Sergio P. Ermotti, Group Chief Executive Officer, Tom Naratil, Group Chief Financial Officer and Group Chief Operating Officer, Martin Osinga, Global Head of Investor Relations ad-interim, and Hubertus Kuelps, Group Head of Communications & Branding.
- 09.00 CET
- 08.00 GMT
- 03.00 US EST
Please note: The presentation and Q&A session will be broadcast via audio (NOT video) webcast with a simultaneous slideshow at www.ubs.com/quarterlyreporting.
Webcast playbacks: an audio playback of the webcast will be available from 12.00 CET on 4 February 2014; an indexed, on-demand version of the webcast will be available from 18.00 CET.
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Cautionary Statement Regarding Forward-Looking Statements | This report contains statements that constitute “forward-looking statements”, including but not limited to management’s outlook for UBS’s financial performance and statements relating to the anticipated effect of transactions and strategic initiatives on UBS’s business and future development. While these forward-looking statements represent UBS’s judgments and expectations 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. These factors include, but are not limited to: (i) the degree to which UBS is successful in executing its announced strategic plans, including its efficiency initiatives and its planned further reduction in Basel III risk-weighted assets (RWA); (ii) developments 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 and interest rates and the effect of economic conditions and market developments on the financial position or creditworthiness of UBS’s clients and counterparties; (iii) changes in the availability of capital and funding, including any changes in UBS’s credit spreads and ratings, or arising from requirements for bail-in debt or loss-absorbing capital; (iv) changes in or the implementation of financial legislation and regulation in Switzerland, the US, the UK and other financial centers that may impose more stringent capital and liquidity requirements, incremental tax requirements, additional levies, limitations on permitted activities, constraints on remuneration or other measures ; (v) uncertainty as to when and to what degree the Swiss Financial Market Supervisory Authority (FINMA) will approve reductions to the incremental RWA resulting from the supplemental operational risk-capital analysis mutually agreed to by UBS and FINMA effective 31 December 2013, or will approve a limited reduction of capital requirements due to measures to reduce resolvability risk; (vi) possible changes to the legal entity structure or booking model of UBS Group in response to enacted, proposed or future legal and regulatory requirements, including capital requirements, the proposal to require non-US banks to establish intermediate holding companies for their US operations, resolvability requirements and the pending Swiss parliamentary proposals and proposals in other countries for mandatory structural reform of banks; (vii) changes in UBS’s competitive position, including whether differences in regulatory capital and other requirements among the major financial centers will adversely affect UBS’s ability to compete in certain lines of business; (viii) 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; (ix) the effects on UBS’s cross-border banking business of tax or regulatory developments and of possible changes in UBS’s policies and practices relating to this business; (x) 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 including differences in compensation practices; (xi) changes in accounting standards or policies, and accounting determinations or interpretations affecting the recognition of gain or loss, the valuation of goodwill and other matters; (xii) limitations on the effectiveness of UBS’s internal processes for risk management, risk control, measurement and modeling, and of financial models generally; (xiii) whether UBS will be successful in keeping pace with competitors in updating its technology, particularly in trading businesses; (xiv) the occurrence of operational failures, such as fraud, unauthorized trading and systems failures; and (xv) the effect that these or other factors or unanticipated events may have on our reputation and the additional consequences that this may have on our business and performance. 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 SEC. More detailed information about those factors is set forth in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2012. 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.
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