UBS reports second quarter net profit of CHF 1,639 million
UBS reports net profit of CHF 1,639 million for second quarter 2003 and CHF 2,853 million for the first half of the year. Before goodwill amortization, net profit in second quarter was up 15% from a year earlier and 29% from first quarter. Positive market developments boosted revenues and profitability in all businesses.
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UBS reports net profit of CHF 1,639 million for second quarter 2003 and CHF 2,853 million for the first half of the year. This includes an after-tax gain of CHF 2 million from the sale of the US clearing business Correspondent Services Corporation (CSC)* to Fidelity. Adjusted for the gain and before goodwill amortization, second quarter net profit was CHF 1,875 million -- up 15% from a year earlier and 29% higher than first quarter.
"The gradual recovery of market activity and improved investor sentiment provided us with excellent opportunities -- and across our businesses, we clearly captured them," said Peter Wuffli, President of the Group Executive Board.
Net new money results remained strong with a total net inflow of CHF 14.4 billion. Global Asset Management reported inflows of CHF 2.4 billion, mainly into high-margin asset classes. The Wealth Management businesses had total net inflows of CHF 10.4 billion. UBS attracted a record CHF 3.3 billion in new client assets from its initiative targeting European domestic markets. In the US market, it achieved net inflows of CHF 3.9 billion, outperforming its peers in the private client market.
Revenues rose compared to first quarter in all of UBS's businesses. Individual and institutional clients transacted more as uncertainties subsided. The Investment Bank benefited from increased levels of activity in equity markets and was again able to post excellent fixed income results.
Compared to second quarter a year ago, UBS's total operating income was up 1%, although it was down 1% if the sale of CSC1 is excluded. While markets rose this quarter, they have not recovered to the levels seen a year ago, keeping asset-based fees below those recorded then. On the positive side, income benefited from record underwriting fees, thanks to increasing demand for equity issuance, as well as a further decline in private equity writedowns.
UBS continued to maintain its strong grip on costs. The cost/income ratio was 74.7%. Before goodwill and excluding the sale of CSC it was 73.4%, its lowest level since late 2000, reflecting particularly impressive efficiency improvements in the Swiss domestic and US wealth management businesses. Operating expenses fell 7% from second quarter 2002, with a 12% drop in general and administrative expenses, thanks to cost-cutting efforts across all businesses.
Headcount, at 66,973 on 30 June 2003, was 4% lower than a year earlier. While UBS has been able to avoid major job cut programs during the difficult environment of the last two years, it has gradually reduced headcount, benefiting from productivity gains while tailoring capacity to the market situation.
The international and Swiss credit portfolios remained resilient in second quarter. UBS realized an aggregate recovery of loan loss provisions of CHF 24 million this quarter, compared to a net credit loss expense of CHF 104 million in first quarter and CHF 37 million in second quarter 2002. This positive development was largely due to a high level of recoveries in the Swiss lending business, which also saw a continuing low level of new impairments. Credit loss expense in the Investment Bank, at CHF 41 million, remained almost unchanged from first quarter.
Single brand successfully introduced
On 9 June, UBS was adopted as the single brand for all major businesses around the world. The move was successfully executed and supported by a global advertising campaign as well as wide-ranging client and internal communication initiatives. In the US - the market most affected by the new brand strategy - these efforts significantly improved awareness for the UBS brand. Between February and June of this year, the proportion of US private clients who felt familiar with UBS as a firm went from less than half to 85%. Moreover, their opinion of UBS has risen significantly and is now highly favourable.
Second quarter saw the coincidence of near perfect fixed income trading conditions and a relatively rapid rise in equity markets. This degree of alignment of major markets is unusual, and as fixed income returns gradually normalize, a one-for-one hand-off to recovering equity-driven business cannot necessarily be expected. Additionally, considering the normal seasonal pattern in capital markets activity, it should be no surprise if revenues dip somewhat over the remainder of the year.
"We do believe that the downward pressure on our industry from the business and market environment is easing, and that the worst is behind us. However, as three months ago, our optimism is tinged with caution: investors remain concerned about future economic prospects and confidence in the financial markets has not yet been fully restored," Peter Wuffli said. "But disciplined cost and capital management, along with a competitive position that enables us to boost revenues whenever markets allow, give us a sense of confidence that we can continue to deliver first-class shareholder returns."
Financial ratios as reported
Annualized return on equity in first half 2003 was 15.7%, compared to 12.8% a year earlier. Basic earnings per share were CHF 1.44 in second quarter, against CHF 1.09 in the same quarter a year earlier. The cost/income ratio was 74.7% in second quarter 2003, down from 80.3% a year ago.
Performance against UBS financial targets
(pre-goodwill and adjusted for significant financial events**)
UBS sets its financial targets and evaluates performance in terms of adjusted results, excluding significant financial events ** and the amortization of goodwill and other intangibles.
On that basis, UBS's performance against financial targets shows:
Annualized return on equity in first half 2003 was 18.3%, up from 15.6% a year ago and well within the target range of 15-20%. This reflects higher returns combined with a significantly lower average level of equity due to the continued buyback of shares, either for cancellation or for use in employee compensation programs.
Basic earnings per share in second quarter 2003 were CHF 1.65, 24% higher than CHF 1.33 in the same quarter last year and at the highest level since third quarter 2000, driven by the same factors as return on equity. Without the second trading line buyback programs in place since 2000, earnings per share would have been 13% lower this quarter.
The cost/income ratio this quarter was 73.4%, a decrease from 77.0% in second quarter last year and the lowest since the merger with PaineWebber.
Full Media Release:
Further information on UBS's quarterly results is available in the Investors & Analysts section.
2Q2003 Report (pdf and interactive version)
2Q2003 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 13 August 2003:
0300 US EDT
Webcast playback will be available from 1400 CET on 13 August, with a bookmarked version at 1800 CET the same day.
Zurich / Basel, 13 August 2003