UBS reports third quarter net profit of CHF 1,673 million
With third quarter 2003 net profit of CHF 1,673 million, UBS reports its most profitable quarter in three years. Excluding goodwill amortization, net profit was CHF 1,911 million, up 53% from a year earlier and 2% higher than second quarter. Net new money of CHF 20 billion demonstrates substantial competitive gains. Return on equity for the year has risen to almost 20%.
UBS reports net profit of CHF 1,673 million for third quarter 2003. Excluding goodwill amortization, net profit was CHF 1,911 million, up 53% from a year earlier and 2% higher than second quarter.
"It is our most profitable quarter in three years, with performance up in all our businesses compared to last year. We captured revenue opportunities despite volatile markets, particularly in fixed income, while the strong net new money inflow again shows our substantial competitive progress," said Peter Wuffli, Chief Executive Officer.
In third quarter, clients brought CHF 20 billion in net new assets to UBS. In institutional asset management, UBS recorded an inflow of CHF 6.3 billion, the highest since 2000. The wealth management businesses posted total net inflows of CHF 15.1 billion; in the US, UBS reported a very strong inflow of CHF 5.7 billion, again outperforming most peers in the private client market. The European wealth management business put in another outstanding performance, reporting strong net new money of CHF 2.8 billion and a 57% year on year rise in revenues.
Operating income was CHF 8,490 million in third quarter 2003, up 6% from the same period a year earlier, benefiting from improved fee and commission income. Corporate finance fees increased, reflecting a pick-up in corporate activity as well as a strengthening of UBS's competitive position. Asset-based and investment fund fees rose on the recovery in equity markets. Revenues in the Fixed Income, Rates and Currencies business remained very strong, despite turbulent bond markets in the summer, highlighting the broad base of this business. Compared to third quarter 2002, private equity writedowns fell significantly.
Costs remained under tight control and were cut in almost all areas, pushing the overall pre-goodwill cost/income ratio to 72.2%, its lowest level since PaineWebber became part of UBS in 2000. Including goodwill amortization, the cost/income ratio was 75.1%. Total operating expenses fell 6% to CHF 6,353 million, with general and administrative expenses down 17%. Personal expenses fell 1%, because of lower salaries, which reflected a decrease in staff levels.
Headcount, at 66,153 on 30 September 2003, was 4% lower than at the beginning of the year. Lean structures and careful management of resources will continue to be crucial success factors in the financial services industry, and so UBS expects to further streamline processes across the firm and reduce corresponding staff levels.
Both the international and Swiss credit portfolios outperformed, with UBS realizing a net recovery of CHF 26 million in third quarter 2003, compared to a net credit loss expense of CHF 95 million a year ago. This positive development was largely due to a consistent level of recoveries and the small number of new impairments.
Employee stock options - grants in 2003 and strategy for future use
UBS recently reviewed the use of stock options in its compensation schemes and concluded that the targeted use of options as an element of the overall compensation strategy gives employees an appropriate long-term incentive to pursue sustainable share price appreciation. Consequently, UBS will continue to make use of options, but will grant them more selectively than before. From 2004 onwards, options will be used solely to match voluntary investments in UBS shares or as targeted discretionary incentives to top performers who make key contributions to the firm's success. As a result of these changes, the number and value of employee stock options awarded are likely to decrease from current levels for grants made in 2004 and thereafter.
As part of its quarterly results discussion from now on, UBS will disclose the pro-forma expense for option awards, net of tax, which would have been incurred if recorded at fair value. In the first nine months of 2003, this expense was CHF 426 million, down from CHF 658 million for the same period a year ago, with the drop mainly attributable to lower prices for the UBS share at grant. Most employee stock options are awarded in the first half of the year, and significant grants are not expected for the remainder of this year. The final value of options awarded in 2003 will be disclosed in UBS's fourth quarter 2003 report.
Throughout the year, market conditions have fluctuated, with trading opportunities shifting from one area to another. UBS has proven to be well positioned to capture those opportunities at the right times. Its diversified revenue mix - with a stable core of wealth and asset management income - helped contain market-driven volatility. Underlying these fluctuations, however, global economies and market conditions have been gradually improving.
"The stronger and more certain the recovery proves, the more positive the effect on our revenues. Our successful track record in delivering consistently excellent results across different market challenges and environments gives us confidence that UBS will continue to offer first-class shareholder returns," Peter Wuffli said.
Financial ratios as reported
Annualized return on equity for the first nine months of 2003 was 16.9%, compared to 11.8% a year earlier. Basic earnings per share were CHF 1.52 in third quarter, against CHF 0.79 in the same quarter a year earlier. The cost/income ratio was 75.1% in third quarter, against 83.9% in the same quarter a year earlier.
Performance against UBS financial targets
(pre-goodwill and adjusted for significant financial results)
UBS sets its financial targets and evaluates performance in terms of adjusted results, excluding significant financial events* and excluding the amortization of goodwill and other intangible assets.
On that basis, UBS's performance against financial targets shows:
Annualized return on equity for the first nine months was 19.5% - its highest level since 2000, up from 14.6% in the same period a year ago and close to the top of UBS's target range of 15-20%. The increase reflects improving net profit combined with a lower average level of equity due to continued buyback programs
Basic earnings per share - at their third highest level ever - increased by 66% to CHF 1.73 in third quarter 2003 from CHF 1.04 a year ago, driven by the same factors as return on equity
The cost/income ratio was 72.2% in third quarter 2003, an improvement from 80.1% reported a year earlier. This drop pushes the ratio down to its lowest level since the merger with PaineWebber, with improvements seen in all Business Groups compared to a year ago.
Full Media Release:
Further information on UBS's quarterly results is available in the Investors & Analysts section.
3Q2003 Report (pdf and interactive version)
3Q2003 Results slide presentation
Letter to shareholders (English, German, French and Italian)
Webcast: The results presentation by Peter Wuffli, Chief Executive Officer, UBS, will be webcast live via www.ubs.com at the following time on 11 November 2003:
0300 US EDT
Webcast playback will be available from 1400 CET on 11 November 2003, with a bookmarked version at 1800 CET the same day.
Zurich / Basel, 11 November 2003
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