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UBS reports third quarter net profit of $1,267 million
With third quarter 2003 net profit of CHF 1,673 million ($1,267 million), UBS reports its most profitable quarter in three years. Excluding goodwill amortization, net profit was CHF 1,911 million ($1,448 million), up 53% from a year earlier and 2% higher than second quarter. Net new money of CHF 20 billion ($15 billion) demonstrates substantial competitive gains. Return on equity for the year has risen to almost 20%.
New York, November 11, 2003 - UBS reports net profit of CHF 1,673 million ($1,267 million) for third quarter 2003. Excluding goodwill amortization, net profit was CHF 1,911 million ($1,448 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 ($15 billion) in net new assets to UBS. In institutional asset management, UBS recorded an inflow of CHF 6.3 billion ($4.8 billion), the highest since 2000. The wealth management businesses posted total net inflows of CHF 15.1 billion ($11.4 billion); in the U.S., UBS reported a very strong inflow of CHF 5.7 billion ($4.3 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 ($2.1 billion) and a 57% year on year rise in revenues.
Operating income was CHF 8,490 million ($6,432 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 ($4,813 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 September 30, 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 ($20 million) in third quarter 2003, compared to a net credit loss expense of CHF 95 million ($72 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 programs 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 ($323 million), down from CHF 658 million ($498 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.
Wealth Management USA
On September 15, 2003, UBS Bank USA began operations, allowing it to offer clients Federal Deposit Insurance Corporation (FDIC) insured deposit accounts and enhanced collateralized lending capabilities. This represents a significant step in strengthening Wealth Management USA's capabilities to provide total balance sheet advisory services to core affluent and high net worth clients. At September 30, 2003, the bank had $5.1 billion in assets.
In the third quarter, net new money totaled $7.3 billion, including dividends and interest of $3.0 billion, which compares very favorably to the performance reported by U.S. competitors.
Invested assets were $474 billion at quarter-end. In U.S. dollar terms, invested assets increased 3% versus last quarter, and were 18% higher than a year ago. This reflects positive inflows of net new money and the effects of market appreciation on invested assets.
Recurring fees were $388 million in third quarter 2003, which in U.S. dollar terms is the highest level since PaineWebber became part of UBS. Excluding the effects of currency, recurring fees increased 11% versus last quarter from rising fees on managed accounts reflecting increased asset levels in these products and mutual fund products. During the quarter, clients invested more than $2.6 billion in managed account products.
The cost/income ratio was 103% in third quarter 2003. Before acquisition costs, the cost/income ratio was 87%, which is a one-percentage point improvement from the same period last year. This result reflects recovering revenues and the benefits of cost management initiatives.
In the third quarter, the Municipal Securities Group ranked number two in lead managed negotiated underwriting volume with a market share of 11.9%, which is up from 11.7% for the same period last year. In addition, the group was the top underwriter in the Education, Housing and Transportation sectors.
According to a recent industry survey, Wealth Management USA's share of the U.S. private client market was 15.2% in the quarter, up from 14.8% in the third quarter of 2002. The business group ranked number two in financial advisor productivity exceeding the industry average by 13%.
In September, UBS announced the acquisition of ABN AMRO's U.S. prime brokerage operations. The acquired business operates in several major U.S. locations and services over 300 small hedge fund clients. The client base, mainly focused on smaller U.S. hedge funds, provides an excellent complement to the Investment Bank's existing Hedge Funds Services business, which is of similar scale but focused on larger hedge funds.
The Investment Bank's share of the U.S. corporate fee pool remained unchanged at 4.3% at the end of both the second and third quarters, although its ranking improved to eighth from ninth.
In the third quarter, global merger and acquisition activity picked up from the very low levels of the last two quarters. The Investment Bank advised on the following notable transactions in the U.S.:
Financial advisor to Comcast, the largest cable television operator in the U.S., on the $7.9 billion sale of its 57% stake in QVC Inc. to Liberty Media Corporation.
Joint advisor to Caremark Rx, a leading U.S. pharmaceutical company, on its $5.8 billion acquisition of AdvancePCS, the nation's largest provider of health improvement services. The transaction aims to create one of the top U.S. healthcare services companies with a pro forma market valuation of $13 billion and represents one of the largest deals in the sector this year.
In terms of NYSE trading volumes, the Investment Bank maintained its third position with an 8.8% market share in third quarter, up from 8.7% last quarter. At NASDAQ, the business group maintained its number seven ranking.
UBS's Fixed Income, Rates and Currencies business achieved a top five ranking in the 2003 Institutional Investor All-America poll, recognizing it as one of the U.S.'s leading research houses.
Global Asset Management
Global Asset Management continues to strengthen its presence in the managed accounts industry. At quarter-end, the business group had surpassed $3 billion in invested assets for separately managed accounts, doubling the invested asset total of a year ago.
Private Wealth Solutions (PWS), the firm's proprietary program, continues to see strong interest from high net worth investors as evidenced by the more than 1,000 accounts opened during the quarter. PWS now has over $1.7 billion in invested assets, an increase of 288% from a year ago. Nearly $1 billion of the program's assets are in its family of Multi-Asset Portfolios.
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 ($1.15) in third quarter, against CHF 0.79 ($0.60) 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(2) 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 ($1.31) in third quarter 2003 from CHF 1.04 ($0.79) 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.
The results presentation by Peter Wuffli, Chief Executive Officer, UBS, will be webcast live via www.ubs.com at the following time on November 11, 2003:
0300 US EST
Webcast playback will be available from 1400 CET on November 11, 2003, with a bookmarked version available at 1800 CET the same day.
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