What are the financial highlights of the past year?
2017 was an excellent year for us, with profit before tax up 29% to CHF 5.3 billion. We also delivered on our CHF 2.1 billion net savings program. That said, at UBS performance is not just judged by annual financial results. One of our firm’s three Principles – along with Client Focus and Excellence – is Sustainable Performance, which we define as focusing on the long term and providing consistent returns to our stakeholders.
Why was your net profit attributable to shareholders far lower in 2017 than it was in 2016?
Like many of our peers, we were affected by a net write-down of our US deferred tax assets, due to the new US tax law. We had been able to write up these deferred tax assets in the past few years, as a result of our strong profitability in the US, and they remain in place for future utilization. The write-down in 2017 had no impact on our fully applied CET1 capital and does not affect our ability to return capital. Excluding the effects of these US tax law changes, net profit was CHF 4 billion, up 22%.
Is UBS’s capital position still a competitive advantage?
Yes, definitely. Capital strength continues to be a key pillar of our strategy. Our fully applied CET1 ratios are comfortably above the 2020 requirements. Since 2012, we’ve substantially reduced risk and balance sheet exposures, while increasing our total loss-absorbing capacity by around CHF 50 billion to almost CHF 80 billion. Our progress and overall resilience is reflected in our valuation compared to peers, our credit ratings and, most importantly, the trust our clients place in us. At the same time, the greater visibility on future capital requirements provided by the Basel Committee at the end of 2017 enabled us to update our capital returns policy and plan more meaningfully for the future.
What are the details of your updated capital returns policy?
Our aim is to further increase returns to shareholders while building on our strong capital position. Going forward, our priority is to pay an ordinary dividend, growing at mid-to-high single-digit percentage per annum, while considering supplementary returns, most likely in the form of share buybacks. For 2017, we intend to propose a dividend to UBS Group AG shareholders, for approval at our May 3rd Annual General Meeting (AGM), of CHF 0.65 per share, an 8% increase on the prior year. We’ll also initiate a share repurchase program of up to CHF 2 billion over three years, including up to CHF 550 million in 2018.
Did the UBS share price develop as you thought it would in 2017?
While we don’t set specific absolute targets for our share price, our aim is that the unique value of our franchise – which is more than the sum of its parts – is properly reflected. A good measure is our valuation on a relative basis. From that perspective – looking at the ratio of our share price to our tangible book value – we’ve been trading at a ratio above one for the past six years and remain in a strong position compared to many peers. Relative share price performance is influenced by a number of factors including business models and geographic exposure. In 2017, peers with greater overall US presence and less influenced by low and negative interest rates in Europe and Switzerland were operating in a much more favorable macroeconomic setting. Combined with the changing regulatory environment in the US, this is reflected in relative transatlantic share price performance. Looking ahead, we’ve set ambitious return and efficiency targets for the next three years to drive further valuation growth.
Your strategy has remained the same for quite a while – is it time to change it?
While we continuously adjust and improve to adapt to a changing environment, our strategic focus on global wealth management and universal banking in Switzerland enhanced by focused and competitive Investment Bank and Asset Management businesses is right for UBS. Sustainable performance is only possible with a long-term strategy. We’re the clear leader in global wealth management and in Switzerland, with the most sophisticated capabilities. The global wealth management market is forecast to grow at twice GDP and as the firm with the most diversified geographic footprint, we are in the best position to benefit from this development. Now that we have more regulatory clarity on future capital and liquidity requirements, we are sharpening our focus on growth across our businesses and making further investments to continue increasing returns to shareholders.
Are your other businesses less important given your focus on wealth management?
No, the UBS franchise is unique and not just about wealth management. Our diversified business model also benefits from Personal & Corporate Banking, the Investment Bank and Asset Management. All are successful businesses in their own right. Together, they make a significant contribution to earnings, diversify revenues and generate high-quality returns. Without them, our Global Wealth Management business would not be what it is today, nor could it deliver on its aspirations. And our Swiss roots and UBS brand continue to be a huge advantage – both in our home market and in growth regions such as Asia Pacific.