UBS reports third quarter net profit of CHF 942 million
UBS reports net profit after tax in third quarter 2002 of CHF 942 million, up 4% from the third quarter a year earlier but down 29% from second quarter 2002. Pre-goodwill, net profit was up 2% from third quarter 2001, but down 24% from second quarter 2002. Despite the pressure of falling equity markets, UBS continues to benefit from its diversified business mix and its ability to flex costs in line with prevailing market conditions. The Group's wealth management businesses again proved their asset gathering strength, with private clients investing net new money of CHF 12.7 billion for the quarter.
UBS achieved third quarter 2002 net profit after tax of CHF 942 million, up 4% from the third quarter a year earlier but 29% lower than in the second quarter of 2002. Pre-goodwill, net profit was CHF 1,247 million, 2% more than third quarter 2001, but down 24% from second quarter 2002.
The decline in net profit compared to the previous quarter reflects the effects of corrections in global equity markets feeding through to asset-based fees along with the depressed levels of corporate and investor activity. Private equity results were again negatively impacted by valuation losses.
"We have demonstrated our ability to manage costs according to prevailing market conditions, with all our businesses continuing to show the elasticity of their cost bases," said Peter Wuffli, President of the Group Executive Board.
Total operating income, at CHF 8,000 million, fell 8% from third quarter a year earlier and was 11% lower than in the second quarter of this year. In UBS Warburg, the Equities business posted a very strong result, with operating income in third quarter up 39% from third quarter a year earlier, compensating for a less attractive foreign exchange trading environment. July 2002 was a record month for equity client commissions. Although asset-based revenues this quarter were negatively affected by falling equity markets, the Group's private client businesses reported steady margins.
Both costs and headcount at UBS are at the lowest point since the merger with PaineWebber in 2000. As UBS did not build up overcapacity during the peak of the last business cycle, it has been able to reduce headcount gradually as economic conditions weakened without having to make drastic cuts.
Lower performance-related compensation helped to reduce personnel expenses considerably to CHF 4,411 million, down 9% from third quarter a year earlier and 8% lower than in the second quarter of this year. Cost savings in practically all areas meant lower general and administrative expenses, which were 7% below third quarter 2001 levels and down 5% from the second quarter of this year.
The performance of UBS's credit portfolio remains resilient in view of the weakening international credit climate. Credit loss expense in third quarter was CHF 95 million, down from the CHF 171 million reported in third quarter a year earlier. The credit loss expense remains unusually low at around half of the statistically expected average over-the-cycle loss rate. This outperformance is unlikely to continue through 2003 as the global credit environment is expected to remain difficult. Levels of impaired loans fell to CHF 11.6 billion, down 7.6% from the second quarter.
The level of invested assets for the Group declined by 6% to CHF 2,070 billion because of falling equity markets. Net new money in the private clients businesses was CHF 12.7 billion in third quarter 2002, once again demonstrating the asset gathering strength of the wealth management franchise. In the US, UBS PaineWebber continued to attract new money with a net inflow of CHF 3.4 billion, up from CHF 1.4 billion in second quarter. In the two years since becoming part of UBS, PaineWebber has gained market share from its competitors, increasing its share of the US private client market to 13.7% in third quarter 2002 from 11.7% in second quarter 2000.
The private banking unit showed very strong net inflows of CHF 9.3 billion due to record investments from international clients of CHF 9.8 billion. After the European wealth management initiative demonstrated its defensive qualities during Italy's tax amnesty, this quarter it displayed its growth potential, achieving a record net new money inflow of CHF 2.5 billion, or an annualized growth rate of almost 40%.
In investment banking, UBS Warburg's market share gains reflect continued success in building its competitive position. In particular, its 3.9% share of the US market is its highest to date, confirming that the investment in top banking talent in the US is yielding results.
Performance against Group financial targets (all pre-goodwill):
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Adjusted for the one-off gain from the sale of Hyposwiss in first quarter, annualized return on equity for the first nine months of 2002 was 14.6%, just below the target range of 15-20%, and slightly lower than the 15.1% recorded for the first nine months of 2001.
Basic earnings per share in third quarter 2002 were CHF 1.04, an increase of 7% from the same quarter last year. Like return on equity, basic earnings per share have been strongly supported by the Group's ongoing share buyback programs, which have continued to return retained earnings directly to shareholders.
The cost/income ratio at 80.1% remained practically unchanged from 79.9% in the third quarter last year. UBS Capital's third quarter 2002 results account for 4% of the Group's cost/income ratio.
Although the tight management of costs has provided an important contribution to UBS's results in the third quarter, it has not in any way hampered the initiatives launched to grow core businesses, which continue to gain market share and remain poised for rapid success as and when economies around the world show a sustained recovery.
"In the current environment, we need a prudent balance between our acknowledged defensive characteristics and our entrepreneurial attitude towards the mid- and long-term growth prospects of our global franchise," said Peter Wuffli.
For now though, the prospects of a sustained global economic recovery remain distant and investor confidence in equity markets remains low. Therefore, UBS's view that its 2002 results are unlikely to reach those of 2001 has not changed from the last quarter.
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Further information on UBS's quarterly results is available in the Investors & Analysts section.
3Q2002 Report (pdf and interactive version)
3Q2002 Results slide presentation
Letter to shareholders (English, German, French and Italian)
Webcast: The results presentation by Peter Wuffli, President of the Group Executive Board, UBS AG, will be webcast live via www.ubs.com at the following time on 12 November 2002:
0300 US EDT
Webcast playback will be available from 1400 CET on 12 November, with a bookmarked version at 1800 CET the same day.
Zurich / Basel, 12 November 2002