Ad hoc releases
UBS results for full-year 2000: Net profit after tax CHF 7,792 million.
UBS reports a record annual result with a net profit for 2000 of CHF 7,792 million. Adjusted for significant financial events, net profit was CHF 8,132 million, representing year-on-year growth of 74%. Also on an adjusted basis and pre-goodwill, earnings per share was CHF 21.83 and return on equity 24.3%. Group assets under management increased by CHF 725 billion to CHF 2,469 billion following the inclusion of PaineWebber.
UBS achieved a record annual result for 2000 with a net profit of CHF 7,792 million, or CHF 8,132 million once adjusted for significant financial events. This strong performance reflects the skills and dedication of UBS staff, the Group's increasingly distinct positioning and the quality of its earnings across varied market conditions. In a difficult year for the equity markets, the UBS share price rose 23% over the twelve months.
Pre-goodwill amortization and adjusted for divestments, one-off provisions and restructuring costs, return on equity for the year increased from 18.2% in 1999 to 24.3%, well in excess of UBS's target range of 15-20% across the cycle. On the same basis, earnings per share increased 76% from CHF 12.37 to CHF 21.83. The cost/income ratio for the year was 69.2%, down from 73.3% in 1999. Group assets under management increased by CHF 725 billion to CHF 2,469 billion, boosted by the inclusion of PaineWebber, which more than offset the effect of the falling dollar and weaker equity markets in the latter part of the year.
Fourth quarter results
Net profit in the fourth quarter was CHF 1,449 million, or CHF 1,634 million once adjusted for significant financial events. This is 54% higher than in fourth quarter 1999 but 21% below the previous quarter's level. Excluding the estimated impact of the merger with PaineWebber, underlying net profit fell 8% quarter on quarter, an excellent result considering the less favorable market conditions and the seasonal slowdown.
UBS Switzerland's Private & Corporate Clients business produced another strong result in the fourth quarter and Private Banking also continued its good performance relative to 1999 (+22% compared to fourth quarter 1999). UBS Asset Management's relative investment performance staged an impressive comeback as its core price/value style outperformed growth-based strategies. UBS Warburg's Corporate & Institutional Clients business unit more than doubled its pre-tax profit compared with fourth quarter 1999, with Corporate Finance performing particularly strongly.
UBS Group Financial Highlights
Paine Webber integration: The integration of PaineWebber has been accomplished very smoothly. With integration complete, UBS is now focused on leveraging PaineWebber's skills across all its businesses.
European wealth management strategy: The PaineWebber merger is a transforming partnership for UBS, not just in the US, but for all its private client businesses. With the US integration smoothly completed, UBS is focusing on deploying PaineWebber's skills in its growing European wealth management business.
In PaineWebber and UBS Private Banking, UBS has scale and excellence in the two traditions of serving private clients: the brokerage model, and the banking model. UBS's strategy in Europe is to combine these capabilities to provide a complete range of wealth management services for its clients. With this combination UBS can meet all the needs of a sophisticated clientele, whether banking in their home country or internationally.
UBS's strategy will focus on wealthy clients, with client segmentation based on the suitability of content and pricing, based on services designed primarily for those with more than EUR 500,000 of investable assets. UBS will not directly target the "mass affluent" segment in Europe.
PaineWebber's top-class abilities in marketing, product management and innovation, technology, and training will be deployed as the key catalysts for the European business. UBS will accelerate the positive momentum of its European domestic private client business, transferring knowledge and resources from the Private Banking business unit to add to the 170 existing advisors currently employed by UBS Warburg, and supplementing them with a program of new hires.
In order to provide a structure able to meet the total needs of each client, UBS will integrate the leadership of its European private client businesses under a single management for each region. The European business of UBS Warburg's International Private Clients business unit will therefore be transferred to the Private Banking business unit, where it will be co-headed by Richard Sipes, with 22 years of experience in PaineWebber, and Raoul Weil, with 14 years of experience in UBS Private Banking.
Open architecture: In December 2000, UBS took an important step forward in the development of its open architecture distribution strategy with the launch of UBS Fund Solutions. Clients are offered access to a pre-screened selection of "best in class" funds from a range of UBS and third-party fund managers. UBS Switzerland's Investment Center screens all the investment funds sold in Switzerland, and client advisors then construct portfolios from the selected funds in line with their clients' investment requirements and risk appetite.
Share buyback program: Given its strong capital generation, UBS intends to establish a further share buyback program on 5 March 2001, intended for capital reduction purposes. Shares will be repurchased under a second trading line on the SWX Swiss Exchange. The Board of Directors has set the maximum value of shares that could be repurchased under the program at CHF 5 billion.
Par value reduction and share split planned: The Board of Directors is recommending a distribution in respect of fourth quarter 2000 in the form of the repayment of CHF 1.60 of the par value per share. Shareholders will also be asked to approve a 3-for-1 share split. These proposals are subject to new regulations which are currently passing through the Swiss legislative process and which are expected to come into force on 1 May 2001. Following the par value repayment and the share split, both expected to take place on 18 July 2001, the par value of the UBS share would be CHF 2.80.
Private equity: development of a unique business model: During 2001, UBS will develop a unique new business model for UBS Capital, its private equity business, designed to best capture the opportunities available from the growth of the international private equity market, and the strength of demand for this asset class.
UBS Capital expects to increase the level of funding sourced from third parties, reducing its dependence on direct funding from the UBS balance sheet. To support this move towards wider participation, the new business model will center on the formation of an autonomous investment management firm known as a fund advisor. The fund advisor will be 80% owned by UBS Capital's current management and 20% by UBS, and will adopt a new corporate identity during third quarter 2001.
The formation of the fund advisor will have a neutral effect on the earnings stream of UBS. UBS will remain a cornerstone investor in new funds, continuing to benefit from a strong commitment to this high-return product. The new fund advisor will remain strongly affiliated with UBS. UBS's private client and investment banking businesses will retain their close links to the private equity business. Individual clients will be supplied with a range of proprietary private equity products, while maintaining complete freedom of choice to select private equity investments from other providers. UBS Warburg will continue to benefit from IPO and M&A referrals.
In tandem with supporting this new business model, UBS will raise its target overall commitment to private equity investment from CHF 5 billion to CHF 7.5 billion.
The year 2000 was outstanding for UBS, and a good year overall for the markets. As we move into 2001, the prospects for markets and for the international credit environment are particularly difficult to predict. The recent upswing in the cycle in Switzerland does, however, afford some protection.
UBS believes that it is well positioned in its credit business thanks to its avoidance of balance-sheet-led growth, although the bank does not expect to see the net credit loss write-backs experienced in 2000. UBS Asset Management is cautiously optimistic about growth as its core price/value investment style demonstrates its strengths in less bullish markets. UBS Warburg has already demonstrated the quality and sustainability of its earnings in the less positive conditions of the second half of 2000.
The biggest opportunity for UBS this year lies in realizing the full transforming value of PaineWebber, not only in the United States but through leveraging its marketing, product innovation and client skills to build the best wealth management firm in the world.
Results of the business groups
UBS's innovative e-banking solutions continued to attract praise in 2000: the independent internet rating agency BlueSky Ratings TM ranked UBS as the best online broker in Switzerland, while Forrester Research's recent survey put UBS among the top two online banks in Europe. The number of e-banking contracts increased to 555,000 at year end, up from 534,000 at the end of September. 22% of all payment orders and 14% of all stock exchange transactions at UBS Switzerland are now executed online.
Private & Corporate Clients
The Private & Corporate Clients business unit had an excellent fourth quarter, delivering a pre-tax profit of CHF 511 million (+10% compared to the previous quarter). Operating income was up 5% compared to the third quarter mainly due to higher net interest income, while operating expenses increased 2% compared to the previous quarter, primarily reflecting higher IT equipment replacement costs.
For the full year, the Private & Corporate Clients business unit reported a record pre-tax profit of CHF 1,993 million (+57% compared with 1999), demonstrating the strength of UBS's domestic banking franchise. Operating income increased to CHF 6,684 million (+9% compared to 1999), primarily reflecting higher fee income and the improved quality of the loan portfolio. Operating expenses were lower at CHF 4,691 million (-4% compared to 1999) due to a reduction in headcount, as the benefits of the UBS/SBC merger continue to show through.
The pre-goodwill cost/income ratio for the year improved from 68% to 63%. Assets under management were essentially stable for the year and for the quarter, finishing 2000 at CHF 440 billion (compared with CHF 439 billion at the end of 1999). Net new money for the quarter was CHF -1.3 billion, with net flows being impacted by the seasonal payment of mortgage interest.
Private Banking's pre-tax profit for the fourth quarter was CHF 815 million (-8% compared to the previous quarter). Operating income was 1% higher than in the third quarter despite a less buoyant market environment, while operating expenses increased 12% mainly due to temporarily higher IT project related costs and marketing expenditure.
On a full-year basis, Private Banking reported a pre-tax profit of CHF 3,682 million, an increase of 25% over 1999, reflecting strong markets in the first part of the year and the margin-enhancing benefits of new value-added products. Operating income was up 21% to CHF 6,714 million while operating expenses increased to CHF 3,032 million (+16% compared with 1999), driven by headcount growth and higher performance-related compensation.
The pre-goodwill cost/income ratio rose from 44% in the third quarter to 49%, but improved from 46% to 44% for the year as a whole. Assets under management decreased slightly during the fourth quarter to CHF 681 billion due to the fall of the dollar against the Swiss franc and weaker equity markets. Since the end of 1999, assets under management have increased by CHF 10 billion. Net new money remained weak with outflows of CHF 0.7 billion in the fourth quarter.
The strategic focus during the fourth quarter was on opening the product architecture for investment funds. With UBS Fund Solutions, UBS now offers its clients "best in class" funds from leading outside providers for an all-in "wrap" fee. Global Asset Management's (GAM) funds and discretionary portfolio management service are also now available to Private Banking clients.
UBS Asset Management
As announced on Tuesday, 20 February 2001, Mitchell Hutchins, PaineWebber's asset management arm, is joining the UBS Asset Management business group and being renamed Brinson Advisors.
Institutional Asset Management
Institutional Asset Management delivered the best relative annual investment performance in its history, as its core price/value investment style demonstrated its strengths in 2000's less bullish markets. Its UK business, Phillips & Drew, was ranked the top-performing pension fund manager in Britain for the year 2000 by Combined Actuarial Performance Services (CAPS), the leading UK performance measurement consultancy.
Institutional Asset Management's pre-tax profit was CHF 31 million for the fourth quarter, the drop of 47% from third quarter 2000 being primarily driven by investment in strategic initiatives.
Operating income was slightly lower at CHF 327 million (-3% compared to the third quarter), while operating expenses increased CHF 18 million to CHF 296 million, principally as a result of expansion in Europe and Asia and investment in new projects.
On a full-year basis, pre-tax earnings were CHF 227 million (-30% compared to 1999). Operating income increased to CHF 1,301 million (+18%) as a result of the launch of the O'Connor business and the acquisition of Allegis. Operating expenses rose to CHF 1,074 million, reflecting higher performance-related personnel expenses and goodwill amortization relating to Allegis.
Over the full year, assets under management decreased 14% to CHF 496 billion, with most of the decline due to losses of client mandates in the early part of the year. The drop of CHF 32 billion in the fourth quarter was primarily attributable to the weakness of the US dollar relative to the Swiss franc and generally falling equity markets. Net outflows moderated further in the last three months of the year and at CHF 4.9 billion were 46% less than in the third quarter.
The Investment Funds/GAM business unit reported a pre-tax profit of CHF 5 million for the fourth quarter. Operating income increased to CHF 161 million (+3%) from the third quarter mainly as a result of the acquisitions of Fondvest in Switzerland and the Fortune Securities & Investment Trust Company in Taiwan. Operating expenses were up 19% to CHF 156 million, primarily in connection with the roll-out of funds@ubs, a distribution platform for fund-based investment solutions, and the two acquisitions referred to above.
Pre-tax profit for the full year was CHF 95 million. Operating income increased to CHF 652 million due to the acquisition of GAM (+141% compared to 1999). Operating expenses were also higher at CHF 557 million (+253%), reflecting spending on third-party distribution initiatives and the GAM acquisition, including associated goodwill amortization.
Assets under management totaled CHF 219 billion at year end. This represents a decline of 4% since the end of September 2000, and 3% since the end of December 1999. Net new money was CHF 2.8 billion during the fourth quarter, reflecting the funds' improved relative performance, and CHF 4.4 billion for the year as whole.
UBS Warburg's business group results include CHF 138 million of goodwill amortization and CHF 132 million of goodwill funding costs relating to the merger with PaineWebber.
Corporate & Institutional Clients
The Corporate & Institutional Clients business unit again delivered strong earnings growth this quarter, with a pre-tax profit of CHF 948 million (+167% compared to fourth quarter 1999).
Equities revenues during fourth quarter 2000 were somewhat lower than in the third quarter, reflecting seasonal trends and poorer market conditions, but remained strong compared to fourth quarter 1999. Corporate Finance produced an excellent performance driven by continued strong M&A performance including several landmark deals. Personnel expenses increased to CHF 1,729 million in the fourth quarter (+26% compared to fourth quarter1999).
Pre-tax profits for the full year were CHF 5,023 million, representing growth of 134%. Equities revenues performed extremely well over the year (+82% compared with 1999). In Fixed Income, the Government & Derivatives and Principal Finance groups delivered excellent results on a full-year basis while Corporate Finance also experienced very strong growth in 2000. The pre-goodwill cost/income ratio improved significantly during the year, dropping from 79% to 70%.
Market risk utilization, as measured by average Value-at-Risk (VaR), decreased from CHF 238 million at the end of September to CHF 216 million at the end of December.
In 2000, UBS Warburg was ranked 6th globally in completed M&A transactions, up from 9th place in 1999. In fourth quarter, it acted as financial advisor for Diageo's bid with Pernod Ricard for Seagram's spirit business, Unilever's acquisition of Bestfoods and for the sale of Nabisco to Philip Morris. UBS Warburg continued to play a leading role in the international fixed income markets, ranking 1st for Eurobonds and 5th in the All International Bonds sector. In the international primary markets, the business improved its ranking in International Equity New Issues from 9th at the end of September 1999 to 8th for the full year. UBS Warburg was the bookrunner on the Deutsche Post Worldnet IPO, the first IPO of a national postal operator.
During fourth quarter 2000, the former capital markets businesses of PaineWebber with their staff of 1,623 were integrated into the Corporate & Institutional Clients unit. In addition to expanding UBS Warburg's capabilities in a number of areas, the integration of PaineWebber has also positioned UBS Warburg more strongly as an employer of choice in the critical US market, employing 27,607 people, or 39% of the Group's worldwide total.
UBS Capital, the private equity arm of UBS Warburg, reported a pre-tax profit of CHF 56 million in the fourth quarter. Operating income increased 126% to CHF 138 million compared to fourth quarter 1999. Operating expenses rose to CHF 82 million (+91% compared to fourth quarter 1999) primarily driven by bonus payments accrued as investments are successfully exited. The book value of UBS Capital's private equity investments grew from CHF 4.5 billion at the end of September to CHF 5.5 billion. The fair value of the portfolio rose from CHF 4.2 billion at the end of 1999 to CHF 6.9 billion. This equates to unrealized gains of CHF 1.3 billion. Value creation in the second half of the year, including increases in unrealized gains and net realized gains, was CHF 0.2 billion, sustaining UBS Capital's impressive record of value creation.
US Private Clients
Because the merger between UBS Warburg and PaineWebber took place in November 2000, the results shown for the US Private Clients business unit relate only to the final two months of 2000. They reflect the performance of the former PaineWebber organization, including Mitchell Hutchins, but without the PaineWebber capital markets businesses.
US Private Clients reported a pre-tax loss of CHF 19 million for the last two months of 2000. Adjusted for retention payments, profit was CHF 98 million. At CHF 1,225 million, operating revenues were running only slightly lower (-2%) than in PaineWebber's individual clients business before the merger, despite the extended seasonal lull due to the uncertainty surrounding the US presidential election. Personnel expenses were CHF 955 million, including CHF 117 million of retention payments. Client assets totaled CHF 794 billion, a drop of CHF 96 billion since 3 November, reflecting the weakness of the dollar relative to the Swiss franc and the continuing decline of equity markets. Net new money was CHF 8.3 billion, with new assets gathered at a faster rate than in the pre-merger period.
In fourth quarter 2000, PaineWebber announced a major initiative to significantly expand its already successful stock option finance business through the formation of Corporate Employee Financial Services (CEFS). Through managing and executing employees' stock options, CEFS gives PaineWebber the opportunity to secure them as long-term investors, managing the wealth their options have generated. CEFS' goal is to capture a larger share of this major market segment in the United States. PaineWebber already provides stock option services to well-known companies such as Cisco, Enron, General Electric and Texas Instruments.
International Private Clients
The International Private Clients business unit's performance continued to improve with losses reduced to CHF 35 million in the fourth quarter (down from a CHF 47 million loss in third quarter ).
Group Financial Information
Total operating income increased 37% compared to fourth quarter 1999 to CHF 9,300 million. For the full year, it was CHF 36,402 million (+28% compared to 1999).
Net interest income before credit loss expense rose to CHF 1,973 million in the fourth quarter. The growth of 13% compared to fourth quarter 1999 reflects higher trading-related income. On a full-year basis, net interest income increased 38% to CHF 8,130 million.
Aggregate credit loss expense for fourth quarter 2000 amounted to CHF 95 million (CHF 46 million in fourth quarter 1999). While the strength of the Swiss economy in 2000 enabled UBS Switzerland to realize a further writeback in credit loss expense, the deteriorating trend in international credit markets required additional loan loss provisions to be taken against UBS Warburg's loan portfolio. UBS's strategy of actively reducing its international credit exposures over the last two years has positioned it relatively well for the less positive outlook in the international credit markets. The improved quality of the overall loan portfolio is reflected in the drop of CHF 677 million (-6%) in non-performing loans during the fourth quarter to CHF 10.5 billion. This represents 3.6% of the overall loan book of CHF 287.1 billion. The portfolio mix improved with the addition of PaineWebber's mostly secured private client loan portfolio.
Net fee and commission income increased to a record level of CHF 5,003 million during fourth quarter 2000 (+49% compared to fourth quarter 1999). CHF 949 million of this growth came from PaineWebber. The remainder chiefly reflects strong performance in Corporate Finance and the contribution from two other new businesses, O'Connor, created in June 2000, and Global Asset Management (GAM), purchased at the end of 1999. The full-year performance of CHF 16,703 million (+32% compared to 1999) reflects these effects as well as the very high level of brokerage fees in the exuberant trading markets at the start of the year.
Net trading income was CHF 1,916 million in the fourth quarter, up 65% compared to the same quarter last year, when performance was depressed by the cautious trading strategies employed as Year 2000 approached. Over the whole year, net trading income rose to CHF 9,953 million (+29% compared to 1999), driven by increased global market activity and the continued strength of UBS Warburg's secondary client franchise.
Total operating expenses of CHF 7,364 million for the fourth quarter (+33% compared to fourth quarter 1999 and +26% compared to third quarter 2000) include PaineWebber expenses for the last two months of the year. Excluding the impact of PaineWebber, costs fell slightly from the third quarter due to lower performance-related compensation. Full-year operating expenses were CHF 26,203 million. The growth of 28% over 1999 is principally due to higher personnel expenses, which rose to CHF 17,163 million for the full year (+36% compared with 1999). This increase reflects bonus compensation in line with the excellent results. Fourth-quarter personnel expenses totaled CHF 4,424 million and included PaineWebber personnel costs as well as CHF 128 million in PaineWebber staff retention payments. Headcount within the Group rose by 22,977 in the last two months of the year to 71,076, mainly as a result of the merger with PaineWebber.
General and administrative expenses were CHF 2,088 million (-10% compared with fourth quarter 1999). Fourth quarter 2000 includes PaineWebber's expenses for the first time, the PaineWebber integration costs and the effect of industry contributions to the US Global Settlement Fund. On a full-year basis, general and administrative expenses rose 11% to CHF 6,765 million.
Depreciation and amortization increased 79% during fourth quarter 2000 to CHF 852 million. Depreciation of goodwill and intangibles resulting from the PaineWebber merger accounted for CHF 138 million and the depreciation of PaineWebber property and equipment for another CHF 44 million.
Goodwill and restructuring costs associated with the PaineWebber merger
The amount of goodwill and intangible assets resulting from the merger with PaineWebber was finalized at CHF 17.5 billion (USD 10 billion) and will be amortized over 20 years. UBS has incurred a total of CHF 746 million (USD 431 million) in restructuring costs as a result of the merger. In accordance with International Accounting Standards, CHF 456 million of these costs have been accounted for as a liability of PaineWebber and added to the goodwill amount for the transaction. The remaining CHF 290 million has been charged in fourth quarter 2000 and treated as a significant financial event.
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 European wealth management strategy and the implementation of a new business model for the private equity business, 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) legislative developments., 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.
More detailed information about those factors is set forth in documents furnished by UBS and filings made by UBS with the SEC. UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.
Zürich/Basel, 22 February 2001