UBS reports detailed results for third quarter 2000: Net profit after tax CHF 2,075 million.
UBS reports a net profit after tax and minority interests of CHF 2,075 million for third quarter 2000. This represents growth of 73% over third quarter 1999 on an adjusted basis. Pre-goodwill amortization, basic earnings per share were CHF 5.46 and the annualized return on equity 29.1%. Group assets under management increased 2% during the third quarter to total CHF 1,746 billion at the end of September.
As already announced in preliminary form, UBS achieved an excellent third quarter result with a net profit after tax and minority interests of CHF 2,075 million. Year-to-date adjusted net profit after tax is
CHF 6,498 million (+80% compared to the first nine months of 1999).
Pre-goodwill amortization and adjusted for divestments, one-off gains and provisions, key metrics developed as follows:
Annualized nine-month return on equity increased from 18.8% to 29.1%;
Basic earnings per share rose from CHF 3.22 (third quarter 1999) to CHF 5.46 (+69.6%);
The cost/income ratio was 68.0% compared to 71.4% in third quarter 1999.
Group assets under management increased 2% during the third quarter, driven by positive investment performance and an improvement in net new money across all business groups.
The excellent overall result for the third quarter was due in part to a very strong performance by UBS Warburg, whose Corporate & Institutional Clients business unit reported profits before tax more than double those achieved in the same quarter last year. The strength of the unit's secondary markets franchise and its relatively lower exposure to the telecommunications, media and technology sectors ensured that, whilst earnings fell somewhat from the earlier quarters of 2000, the effect was less than for the investment banking industry in general.
UBS Switzerland achieved its strongest third quarter result ever. The performance of the Private & Corporate Clients business unit was only slightly behind the last two record quarters, aided by further successful cost reduction. Private Banking continued its improved performance with earnings increasing from second quarter 2000 despite quieter markets, and up 22% from a year ago.
UBS Group Financial Highlights
The merger of UBS and PaineWebber creating a pre-eminent global investment services firm was formally completed on 3 November, less than four months after announcement. In September, UBS shareholders gave their near unanimous approval of the capital increase for use in the transaction, and in October PaineWebber shareholders overwhelmingly approved the merger. The combination of PaineWebber's strong affluent client franchise in the United States with UBS's international reach and product range opens up major opportunities for further growth. PaineWebber brings 2.7 million new investment clients to UBS's customer franchise and increases Group assets under management by about CHF 850 billion.
The integration of PaineWebber into the UBS Warburg business group is proceeding very smoothly and will be complete by year-end. 98% of PaineWebber employees offered employment letters by UBS have accepted their offers. The capital markets activities of PaineWebber are being fully integrated with those of UBS Warburg. PaineWebber's private clients and asset management businesses will continue under their current management and will absorb all UBS Warburg's existing private client activities. The PaineWebber brand will be retained for all US private clients business.
Financing the transaction: In completing the transaction, UBS acquired a total of 163.8 million PaineWebber shares for a total consideration of USD 11.8 billion (CHF 20.8 billion). Under the terms of the merger agreement, the consideration was satisfied by a cash payment of USD 6.0 billion (CHF 10.6 billion) and delivery of 40.6 million UBS shares. UBS made an initial issuance of 12 million ordinary shares from authorized capital, re-issued 7 million ordinary shares held in Treasury and borrowed the remaining shares in the market.
Announcement of top-management succession plans: In October, UBS announced the decision by Alex Krauer, Chairman of the Board of Directors, to step down from his function after the Annual General Meeting on 26 April 2001. Shareholders will be asked to approve the appointment of Marcel Ospel, Group Chief Executive Officer, as his successor. The Board of Directors has also nominated Luqman Arnold as the new President of the Group Executive Board. In addition to his new function, Luqman Arnold will continue to directly supervise the finance and risk management functions.
To more accurately reflect UBS's global reach and international business at Board level, the Annual General Meeting will additionally be requested to elect three new non-Swiss directors.
Treasury share repurchase program: On 6 November 2000, UBS started a Treasury share repurchase program that will run until 30 June 2001 at the latest. Shares repurchased will not be cancelled but will be used for Treasury purposes, helping to offset the capital-increasing effect of UBS's strong cashflow generation. 6,4 million shares were purchased up to 27 November 2000, at an average price of CHF 252 per share.
UBS is pleased to have been able to report strong results so far this year and to have maintained this performance through the recent more mixed market conditions. The fourth quarter is normally the quietest part of the year in most of UBS's businesses, and the Group expects this year to be no exception. In addition, UBS expects a one-off impact in the fourth quarter from PaineWebber integration and restructuring costs.
UBS is nevertheless confident that it can complete 2000 in robust form and that it is excellently positioned for further success in 2001. The fourth quarter results will be presented together with the full-year financials on 22 February 2001.
Results of the business groups
UBS's position as best online broker in Switzerland was re-affirmed at the end of September by BlueSky Ratings TM, an independent provider of online broker ratings. The number of e-banking contracts increased to 534,000 during the quarter, up from 506,000 at the end of June. 20% of all payment orders and 12% of all UBS Switzerland stock exchange orders are now transacted via e-banking channels. On 21 September 2000, after a highly successful two-month pilot phase, UBS launched e-banking wap for all e-banking clients, making it one of the first banks in the world to offer stock-market transactions via wap mobile phones.
Private & Corporate Clients
The Private & Corporate Clients business unit had a very good quarter, delivering a pre-tax profit of CHF 464 million (+61% compared to third quarter 1999), but fell slightly short of its record second quarter performance (-12%). Operating income was 5% lower than for the second quarter due to lower net interest income and certain one-off revenues recorded in the previous period. Expected credit loss expense decreased again, reflecting continued improvements in asset quality. Operating expenses were 3% lower, consistent with the continued focus on cost management. Compared to second quarter 2000, the pre-goodwill cost/income ratio before credit loss expense rose slightly from 62% to 64%. Assets under management increased by CHF 1 billion to CHF 440 billion, with the growth coming from net new money.
In September, UBS announced the creation of its own life insurance company, which it plans to launch in the first quarter of 2001. The new subsidiary will strengthen UBS's life insurance content, whilst retaining its open architecture structure.
UBS, in partnership with PayNet, has also implemented a new electronic billing presentment and payment system, making UBS the first Swiss bank to provide a fully integrated business-to-business electronic payment solution linking suppliers, business clients and their bank. UBS plans to expand the service early next year to cover business-to-consumer billing.
Pre-tax profit at UBS Private Banking was CHF 887 million, slightly higher than for the second quarter and 22% up on third quarter 1999. Operating income was virtually stable compared to second quarter 2000, while operating expenses were 2% lower. The pre-goodwill cost/income ratio improved slightly from 45% to 44%. Assets under management increased by CHF 24 billion during the quarter to CHF 707 billion, reflecting strong investment performance and net new money of CHF 0.5 billion.
The third quarter saw the launch of UBS Switzerland's Investment Center which consolidates the research capabilities and investment strategies of UBS Switzerland's two business units, creating high-quality investment advice specifically suited to private clients.
The number of client mandates for the new Active Portfolio Advisory (APA) and Active Portfolio Supervision (APS) services continued to grow at a significant rate. APS provides clients with investment recommendations whenever their portfolio breaches specified parameters while APA additionally gives direct access to a dedicated investment specialist and tailor-made strategies.
Since September, UBS Private Banking has been offering GAM Funds and GAM discretionary portfolio management to clients of UBS Switzerland. GAM's mission is to provide clients with access to the best investment talent available worldwide, offering a choice of active investment styles and a range of well-renowned funds. UBS Private Banking is further developing its open fund architecture and will make available a pre-screened selection of best-in-class funds from UBS, GAM and third parties through multiple access channels.
UBS Asset Management
Institutional Asset Management
Institutional Asset Management reported a pre-tax profit of CHF 58 million for the third quarter
(-2% compared to second quarter 2000). Operating income and operating expenses both increased as the new O'Connor business became fully operational. Total assets under management rose from CHF 525 billion to CHF 528 billion during the quarter principally as a result of currency movements. Net outflows moderated further, with net new money losses of CHF 9 billion significantly lower than in the previous quarters.
UBS Asset Management launched a number of initiatives during the quarter to expand its presence in Asia. In Japan, a partnership with Mitsubishi Corporation was announced, leading to the launch in 2001 of a joint venture investment advisory firm to manage Real Estate Investment Trusts (REITs). In Hong Kong, an Equities Investment Team covering Greater China will be established over the next few months.
The Investment Funds/GAM business unit achieved a pre-tax profit of CHF 26 million. Operating income decreased slightly while operating expenses were unchanged. Assets under management increased from CHF 225 billion to CHF 227 billion, the result of investment performance and slight growth in net new money.
As part of its strategy to expand its international fund distribution capabilities, UBS Asset Management has launched its new distribution platform funds@ubs designed to provide clients and staff of distribution partners with fund-based investment solutions. The first such tie-up, announced in November, is with Lufthansa Miles & More.
UBS Asset Management also recently acquired Fondvest AG, a company specializing in independent advisory and distribution services in the fund business. Fondvest provides clients with a comprehensive range of funds from Swiss and foreign providers. UBS has thus secured access to an independent service platform in the dynamic growth market of open fund distribution.
Corporate & Institutional Clients
The Corporate & Institutional Clients business unit produced a pre-tax profit of CHF 1,210 million, up 116% over third quarter 1999. Year-to-date pre-tax profits of CHF 4,075 million have increased 128% from the same period in 1999, confirming the business unit's consistent strong performance this year.
UBS Warburg's ranking in Completed Global Mergers and Acquisitions has improved during the quarter to 5th year-to-date from 6th at half-year. During the quarter, UBS Warburg was involved as adviser in several significant global transactions, including the offer made by the Italian internet service provider Tiscali for its Dutch rival World Online and the purchase by Foster's Brewing Group of the California-based Beringer Wine Estates Holdings Inc.
In the international bond markets UBS Warburg's ranking remains good, with year-to-date positions of 1st in Eurobonds and 5th in International Bonds. The business group continued to improve its performance in the international primary equity markets, with its ranking in International Equity New Issues increasing from 11th at half-year to 9th year-to-date.
Equities revenues were somewhat lower than during the second quarter of 2000, reflecting the decrease in market volumes during the period. Nevertheless, the equity franchise continued to perform extremely well with increased revenues compared with third quarter 1999, largely driven by secondary client activity. In Fixed Income, UBS Warburg's Governments, Derivatives, Investment Grade and Emerging Markets businesses delivered excellent results. Corporate Finance also performed very well, driven by favorable market conditions. The recent distribution-led expansion of the Corporate & Institutional Clients business unit in the high-yield bonds and leveraged finance business has generated significant market share gains and has not resulted in any significant holdings of unsyndicated bond or loan positions, or material mark-downs. UBS Warburg has only recently begun to build its franchise in the telecommunications, media and technology sectors and is therefore not significantly impacted by the recent swings in valuations and shifts in levels of client activity. Personnel expenses increased 37% from the same quarter last year to CHF 2,193 million, reflecting higher performance-related compensation.
The pre-goodwill cost/income ratio was 70%, representing a significant improvement over the 78% recorded in third quarter 1999. Market risk utilization, as measured by average Value-at-Risk (VaR), decreased from CHF 253 million to CHF 238 million in the third quarter. The ratio of non-performing loans to total loans was 2.1%, down from 2.7% at the end of June.
UBS Warburg's web-based Business-to-Business Solution IBOL (Investment Banking Online) continues its success. Approximately USD 12 billion of primary debt was raised through DebtWebTM in third quarter 2000, bringing the year-to-date total to USD 54 billion. Some USD 17 billion of new equity issues were marketed on DealKeyTM during the quarter.
UBS Capital, the private equity arm of UBS Warburg, reported a pre-tax profit of CHF 46 million. Operating income grew to CHF 79 million, a marked increase over second quarter 2000 when write-downs were made to the value of some under-performing investments in the portfolio. Operating expenses were CHF 33 million for the quarter, a decrease of 30%. UBS Capital has made CHF 0.7 billion of new investments during the quarter, bringing the total book value to CHF 4.5 billion.
The Private Clients business unit reduced losses to CHF 47 million compared to CHF 69 million in the second quarter. Assets under management increased 19% to CHF 44 billion, including net new money of CHF 8 billion. The sharp changes in the quarter-on-quarter net new money trend reflect the relatively early stage of this business unit's development. UBS Warburg Private Clients does not expect to repeat this exceptional performance in the fourth quarter.
With the completion of the merger, the US portion of UBS Warburg's Private Clients business will be added to the existing PaineWebber private clients business in the US. This integration is proceeding well. The European and Asia-Pacific Private Clients businesses will be combined with e-services, under a single management and integrated business model. UBS Warburg will leverage the management, technology and experience of PaineWebber to establish a truly adviser-centric business model, focused on core affluent and high net worth clients, building on the existing client base, content and resources.
During the third quarter, UBS Warburg's e-services project delivered its pre-launch objectives in a timely and very satisfactory manner: a UK banking license was received from the Financial Services Authority (FSA), with a passport to all European Union countries. The real-time e-services platform, which is multi-currency, multi-entity and multi-lingual, has also been built and successfully tested.
Following the decision to integrate e-services with the Private Clients unit and re-align its strategic focus, e-services' expansion plans were put on hold, reducing operating expenses to CHF 68 million (-28%) compared to the second quarter.
The merger with PaineWebber provides UBS Warburg with a unique opportunity to extend PaineWebber's highly successful US adviser-centric business model to the European onshore high net worth and affluent private clients market. Together with the existing non-US business of UBS Warburg Private Clients, e-services will form the core of this new venture, which will focus on premium private and investment clients. The back-end systems developed for e-services will be integrated with front-end technology based on PaineWebber's industry-leading online services.
Results from the Group financial account
Total operating income increased 31% over the third quarter of 1999 to CHF 8,545 million. Net interest income before credit loss expense rose to CHF 1,831 million (+30% over third quarter 1999), reflecting higher income from securities lending and borrowing and from lending to clients and banks.
The sustained rebound in the Swiss economy enabled UBS to realize a write-back of CHF 142 million in credit loss expenses during the third quarter. This continuing favorable experience is in sharp contrast to the CHF 275 million of credit loss expenses recorded in third quarter 1999. The significant reduction in the international loan portfolio achieved during the past two years leaves UBS well positioned for the less positive credit conditions expected to prevail outside Switzerland. In particular, UBS's loan exposure to the telecom sector is relatively small, representing less than 2% of gross loans outstanding. The further improvement in the credit risk portfolio is also evident in the reduction of non-performing loans by CHF 956 million (-8%) to
CHF 11.1 billion during the third quarter. This represents 3.9% of the total loan book of CHF 282.4 billion.
Net fee and commission income was CHF 3,865 million, an increase of 26% over third quarter 1999. Brokerage fees rose strongly from the same period last year, reflecting higher client activity in UBS Switzerland and busier markets. Underwriting fees and corporate finance fees were up 65% and 71% respectively compared to third quarter 1999. Portfolio and other management and advisory fees also developed well, driven partly by the new O'Connor business. The growth in investment fund fees reflects the addition of GAM, purchased in fourth quarter 1999, increased fund assets and the greater proportion of client money invested in higher-margin equity funds.
Net trading income was CHF 2,368 million (+13% over third quarter 1999). Equity trading revenues were well ahead of third quarter 1999 but, when combined with dividend income, fell slightly in comparison to second quarter 2000, reflecting the seasonal reduction in market activity and trading opportunities normally experienced during the summer months.
Other income increased 42% to CHF 339 million compared to third quarter 1999, primarily due to the inclusion of income from Klinik Hirslanden, which was consolidated for the first time in fourth quarter 1999.
Total operating expenses increased 19% over third quarter 1999 to CHF 5,842 million. Once again, this is largely due to higher performance-related compensation connected with the good results. Personnel expenses rose 24% over third quarter 1999 to CHF 3,863 million but were 11% down on second quarter 2000 in line with slower revenues. Headcount within the Group increased by 355 during the third quarter to 48,099, mainly due to selective personnel growth at UBS Warburg.
General and administrative expenses at CHF 1,503 million were slightly higher (+8%) than in third quarter 1999, mainly due to adverse currency movements and the impact of the consolidation of Klinik Hirslanden. Depreciation and amortization rose 12% to CHF 476 million compared to third quarter 1999, with increases in goodwill amortization due to the acquisitions of Allegis and GAM.
Status of the restructuring provision
Of the CHF 7,300 million merger-related restructuring provision, a total of CHF 6,143 million has been used since the beginning of 1998. CHF 81 million of this amount was drawn in third quarter 2000, partly to cover vacancy-related premises costs.
With the sale in October of Solothurner Bank to Bâloise Insurance, UBS has complied with one of the last conditions set by the Swiss Competition Commission in connection with the 1998 merger between Swiss Bank Corporation and Union Bank of Switzerland. The sale will be booked in the financial accounts in fourth quarter 2000.
Timetable for Quarterly Reporting 2000
In order to continue our focus on reporting and analyzing the quarterly performance of UBS's businesses, and to ensure that market-sensitive data about UBS's results can be released as early as possible, we will issue a fourth quarter report on 22 February 2001 in addition to the Annual Report, which will be issued on 15 March 2001 as originally planned.
With effect from first quarter 2001, UBS will release its quarterly results approximately six weeks after quarter-end, rather than the current eight weeks. Quarterly reports will be issued on 15 May 2001 for the first quarter, 14 August 2001 for the second quarter and 13 November 2001 for the third quarter.
Zurich/Basel, 28 November 2000
Further information on UBS quarterly results available as a pdf-download and pilot interactive report at http://www.ubs.com/investor-relations:
Financial Report including detailed tables
Cautionary statement regarding forward-looking statements
This communication contains statements that constitute "forward-looking statements", including, without limitation, statements relating to the implementation of strategic initiatives, including the implementation of the integration of PaineWebber into UBS, and other statements relating to our future business development and economic performance.
While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations.
These factors include, but are not limited to, (1) general market, macro-economic, governmental and regulatory trends, (2) movements in local and international securities markets, currency exchange rates and interest rates, (3) competitive pressures, (4) technological developments, (5) changes in the financial position or creditworthiness of our customers, obligors and counterparties, (6) our ability to carry out the integration of PaineWebber into UBS within the scheduled timeframe and to achieve the anticipated resulting benefits of the merger, and (7) other key factors that we have indicated could adversely affect our business and financial performance which are contained in our past and future filings and reports, including those with the SEC.
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