UBS: strong 1st quarter performance
UBS achieved a Group pre-tax profit of CHF 2,114 million (+19%) for the first quarter of 1999. Net profit after tax and minority interests rose 21% to CHF 1,621 million, equivalent to earnings per share of CHF 7.67 and a return on equity of 21.2%. Group assets under management grew 4.3% over the quarter to CHF 1.6 trillion. UBS is confident that profitability will be substantially higher in 1999 than in 1998.
UBS reports a first-quarter net profit of CHF 1,621 million, an increase of 21% over the equivalent 1998 period. Operating income rose 3% to CHF 6.9 billion, while operating expenses fell 3% to CHF 4.8 billion. The cost-income ratio improved from 7O.6% to 66.5%. These figures confirm that profitability and revenue-generating capacities are developing well and that UBS is successfully on track with its clear strategic focus.
The Group financial statements include a post-tax gain of CHF 90 million from the sale of the Julius Baer registered share holding. The substantial proceeds from the divestment of the 25% stake in Swiss Life/Rentenanstalt and the sale of the international trade finance business to Standard Chartered PLC will be booked in the second quarter of 1999.
(Note: The financial accounts were calculated retroactively for first quarter 1998. The published segment reports are not available for the corresponding first quarter 1998 results)
In first quarter 1999, the Private Banking Division posted CHF 709 million in pre-tax income. This result was influenced by slightly lower commissions and brokerage fees due to reduced transaction volumes during the quarter. Eliminating the influence of the divestments made in the course of 1998, the result is estimated to be roughly in line with the corresponding period of 1998.
Assets under management rose 4.3% to CHF 633 billion since year-end 1998. Not included in this figure is Bank of America's international private banking activities in Europe and Asia which UBS acquired in the first quarter of 1999. The development of domestic private banking business outside Switzerland has progressed rapidly according to plan, both geographically and in terms of staffing.
The Warburg Dillon Read Division achieved an excellent result, recording pre-tax profits of CHF 783 million. Assisted by generally favourable market conditions, this performance reflects the focus on sustainable high-quality earnings and client-driven core businesses. Revenue-generating capacity was increased against the corresponding period of 1998, with 25% fewer staff. The global Equities business, particularly distribution and trading of European equities and equity derivative products, performed extremely well. Fixed-income business also contributed significantly to revenues. Corporate Finance business and Treasury products developed in line with expectations.
The Private and Corporate Clients Division's pre-tax performance was CHF 382 million. While revenues rose strongly in part due to the positive development of interest-rate margins, costs remained mostly flat, largely due to effective cost control. Assets under management grew 6% since year-end 1998 to CHF 461 billion.
The migration of approximately 2.5 million clients to a common IT platform is moving ahead on schedule. By the end of April 1999, some 1.4 million clients had been transferred; the remainder will be migrated by the end of July.
UBS Brinson posted a pre-tax segment performance of CHF 68 million for first quarter 1999. The Brinson business area achieved a satisfactory result. The Phillips & Drew business area is experiencing a particularly challenging environment in the UK, and this adversely impacted revenues. Assets under management grew 3% since the end of 1998 to CHF 545 billion, with institutional assets accounting for CHF 364 billion (+1%). Investment fund assets grew 5.8% to CHF 181 billion, confirming UBS's clear market leadership in Europe and Switzerland.
UBS Capital, which specializes in private equity investment, recorded a segment performance before tax of CHF 48 million. As revenues are deal-dependent, short-term comparisons are less meaningful in this business. Costs remained in line with expectations. As of the end of March 1999, the book value of the portfolio was CHF 1.9 billion.
Operating income rose 3% to CHF 6,918 million compared with first quarter 1998. Net interest income decreased 6% to CHF 1,674 million, reflecting the drop in income associated with divestments made during 1998, a significant reduction in international loan business and lower returns on invested equity. Total credit loss expense charged to the income statement was slightly below expectations at CHF 310 million. In Switzerland, the better economic environment led to a drop in new non-performing loans. There was a further improvement in the quality of the overall loan portfolio. At the end of March 1999, the bank had CHF 15.4 billion in non-performing loans, down from CHF 15.7 billion at the end of 1998 and CHF 16.7 billion at the end of 1997. Approximately 96% of this total was covered by allowances and provisions, a ratio which is high by Swiss and international standards.
Net fee and commission income totalled CHF 2,958 million, the decrease of 9% being due in part to the divestment of subsidiaries last year. UBS fees from investment funds made excellent progress. Income from brokerage fees decreased due to lower transaction volumes on the Swiss Exchange while underwriting and corporate finance fees were down relative to an exceptionally strong first quarter 1998.
Net trading income grew a strong 26% to CHF 2,104 million. Supported by better conditions on the financial markets and the stronger focus on client-driven business, revenues from equities and fixed-income trading were substantially higher. Income from foreign exchange and banknote trading declined slightly as foreign-exchange volumes were subdued following the introduction of the single European currency.
Other income, including income from associates, increased 76% to CHF 492 million, due in large measure to the post-tax gain of CHF 90 million from the sale of the Julius Baer registered share holding.
Operating expenses fell 3% to CHF 4,804 million. Personnel expenses were 4% higher at CHF 3,297 million. The good financial results led to an increase in performance-related compensation, notably at Warburg Dillon Read, and this more than offset the cost savings resulting from the merger and divestments. Due to merger-related cost savings, general and administrative expenses decreased 15% to CHF 1,125 million and depreciation and amortization by 14% to CHF 382 million.
Status of the restructuring provision
Of the CHF 7 billion merger-related restructuring provision booked in 1997, a total of CHF 4,544 million has been used since the beginning of 1998. CHF 517 million of this was drawn in the first quarter of 1999 to cover personnel-related measures (outside Switzerland), IT integration costs and real estate expenditure.
The restructuring provision will cover all the costs associated with the merger and will foreseeably be utilized in full within the next two years.
UBS began preparations in the IT and operational areas for the transition to the year 2000 back in 1996, and these have been moving ahead as planned. By the end of March 1999, 85% of the remediation work on critical systems had been completed. By mid-1999, these systems will be substantially Year 2000-compliant. The bank's participation in a series of tests ("Y2K Interbank Test") has confirmed the high quality of its remediation effort. In first quarter 1999, UBS spent a total of CHF 94 million on Year 2000-related issues and for the full year expects Y2K costs to run to about CHF 370 million.
A direct extrapolation of the first quarter into full-year results is not feasible due to the challenging financial market environment and the influence of seasonal factors. Nonetheless, based on its strong market position and the scope that exists for further synergies, UBS is confident profitability in 1999 will be substantially higher than in 1998.
Zurich/Basel 27 May 1999
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