UBS's fourth-quarter 2014 results
Fourth-quarter net profit CHF 1 billion; ordinary dividend doubled
2014 net profit attributable to shareholders up 13% to CHF 3.6 billion; diluted EPS CHF 0.94
Ordinary dividend of CHF 0.50 per share proposed for the financial year 2014
Accrued one-time supplementary dividend of CHF 0.25 per share
Fully applied Basel III CET 1 ratio remains best in peer group
Zurich/Basel, 10 February 2015 – Following a fourth-quarter net profit attributable to shareholders of CHF 1 billion, UBS Group AG's net profit for 2014 increased 13% year over year to CHF 3.6 billion. Profit before tax for the year was CHF 2.9 billion on an adjusted basis and CHF 2.6 billion on a reported basis. All of UBS’s business divisions made significant progress in 2014. Wealth Management adjusted1 profit before tax increased 4% and the business attracted the highest net new money in Asia Pacific since 2007. Wealth Management Americas achieved another record adjusted1 profit before tax, which exceeded USD 1 billion. Retail & Corporate delivered on all its targets and adjusted1 profit before tax rose 4%. Global Asset Management achieved a significant turnaround in net new money, while the Investment Bank delivered a strong performance, with revenues up 8% in Corporate Client Solutions.
In 2014, UBS continued to reduce risk-weighted assets (RWA), improve its leverage ratio, and maintain the best fully applied Basel III CET 1 ratio in its peer group. These achievements, along with the 13% rise in net profit, enabled the firm to deliver attractive returns to its shareholders. Consequently, UBS intends to propose an ordinary dividend of CHF 0.50 per share for the financial year 2014, an increase of 100% on the prior year and a payout ratio of 53% of the Group's reported net profit.
Reflecting progress in the establishment of the new Group holding company, including the successful completion of the share-for-share exchange offer, UBS fully accrued a supplementary capital return of CHF 0.25 per share in the fourth quarter of 2014. Subject to shareholder approval, UBS Group AG intends to pay this one-time supplementary capital return upon successful completion of the squeeze-out procedure. UBS Group AG intends (subject to market conditions) to enter the capital markets with its initial offering of additional tier 1 (AT1) capital securities later this month.
Commenting on UBS’s full-year and fourth-quarter results, Group Chief Executive Officer Sergio P. Ermotti said, "I am pleased with what we have achieved in 2014. The results are strong, our capital is strong and we've completed our strategic transformation, preparing us well for the future. While it's premature to draw a conclusion about the quarter, we've had a solid start to the year. This gives us additional confidence to propose a significant capital return to our shareholders."
Information in this release is presented for UBS Group AG on a consolidated basis unless otherwise specified. Key figures for UBS AG are included at the end of this release. Financial information for UBS AG does not differ materially from UBS Group AG; the differences are described on page 11 and 12 of the UBS Group AG quarterly report.
- Net profit attributable to UBS Group AG shareholders CHF 3.6 billion; diluted earnings per share CHF 0.94
- Ordinary dividend for the financial year 2014 of CHF 0.50 per share to be proposed, an increase of 100% and payout ratio of 53%
- One-time supplementary dividend of CHF 0.25 per share accrued
- Adjusted1 profit before tax CHF 2.9 billion
- Fully applied common equity tier 1 (CET1) ratio surpassed the firm's long-stated target of 13%, enabling the firm to maintain the best fully applied Basel III CET 1 ratio in its peer group even as it accrued for increased returns to shareholders
- Fully applied RWA of CHF 216 billion versus end-2015 target of under CHF 215 billion
- Fully applied Swiss SRB leverage ratio up 70 basis points to 4.1%; leverage, funding and liquidity ratios all remain comfortably above regulatory requirements
- Wealth Management increased adjusted1 profit before tax 4% to CHF 2.5 billion, the highest since 2008; net new money strong at CHF 34.4 billion, reflecting highest net inflows from Asia Pacific since 2007 and resulting in net new money growth within the target range
- Wealth Management Americas achieved record adjusted1 profit before tax of over USD 1.0 billion; net new money USD 10.0 billion; gross margin and adjusted1 cost / income ratio both within the target ranges
- Retail & Corporate increased adjusted1 profit before tax 4% to CHF 1.6 billion; net new business volume growth, net interest margin and adjusted1 cost / income ratio all within the target ranges
- Global Asset Management adjusted1 profit before tax CHF 0.5 billion; net new money excluding money market flows CHF 22.6 billion, resulting in net new money growth rate within the target range
- Investment Bank recorded adjusted1 profit before tax of CHF 0.3 billion as the business dealt with industry-wide legal and regulatory issues and operated within tight resource limits; revenues up 8% in Corporate Client Solutions
- Net profit attributable to UBS Group AG shareholders CHF 963 million; diluted earnings per share CHF 0.26
- Adjusted1 profit before tax CHF 648 million
- Wealth Management adjusted1 profit before tax CHF 694 million; net new money CHF 3.0 billion on buoyant net new money flows from clients in Asia Pacific, ultra high net worth clients globally and its domestic business in Europe; adjusted1 cost / income ratio remained within the target range
- Wealth Management Americas adjusted1 profit before tax USD 233 million; new quarterly record for operating income; net new money increased to USD 5.5 billion, annualized net new money growth rate, gross margin and adjusted1 cost / income ratio all within the target ranges
- Retail & Corporate adjusted1 profit before tax CHF 356 million; net interest margin and adjusted1 cost / income ratio both remained within the target ranges
- Global Asset Management adjusted1 profit before tax CHF 124 million; higher operating income primarily reflected increased performance fees in traditional investments and global real estate
- Investment Bank adjusted1 profit before tax CHF 426 million; revenues higher in both advisory and equity capital markets; while the adjusted1 annualized return on attributed equity was below the target for the year, it was above the target for the quarter; adjusted1 cost / income ratio improved and was within the target range
Annual performance targets
We have amended certain external performance targets and key performance indicators for the Group and the business divisions for 2015 and future years. Provided below is a full list of performance targets, which assume constant foreign exchange rates and supersede all previously communicated targets.
- Adjusted1 return on tangible equity: around 10% in 2015 and > 15% from 2016
- Basel III fully applied CET1 ratio: 13% and 10% post-stress
- Basel III RWA: <CHF 215 billion by 31.12.15
- Basel III RWA: <CHF 200 billion by 31.12.17
- Swiss SRB leverage ratio denominator of CHF 900 billion by 2016[i]
- Adjusted1 cost / income ratio: 60–70%
- Net new money growth rate: 3–5%
- Adjusted1 cost / income ratio: 55–65%
Wealth Management Americas
- Net new money growth rate: 2–4%
- Adjusted1 cost / income ratio: 75–85%
Wealth Management and Wealth Management Americas
- Combined adjusted1 profit before tax growth of 10–15% per annum over the medium term
Retail & Corporate
- Net new business volume growth for retail business: 1-4%
- Net interest margin: 140–180 bps
- Adjusted1 cost / income ratio: 50–60%
Global Asset Management
- Net new money growth rate: 3–5% excluding money market
- Adjusted1 cost / income ratio: 60–70%
- Adjusted1 annual profit before tax: CHF 1 billion in the medium term
- Adjusted1 annual pre-tax return on attributed equity: >15%
- Adjusted1 cost / income ratio: 70–80%
- Basel III RWA limit of CHF 70 billion
- Funded assets limit of CHF 200 billion
Corporate Center – Core Functions
- CHF 1.0 billion annual net cost reduction by year-end 2015[ii],[iii]
Corporate Center – Non-core and Legacy Portfolio
- Basel III RWA: ~CHF 40 billion by 31.12.15
- Basel III RWA: ~CHF 25 billion by 31.12.17
- CHF 0.4 billion annual net cost reduction by year-end 20153
- CHF 0.7 billion additional annual net cost reduction after 2015[iv],[v]
Fourth quarter: Group and divisional overview
For the fourth quarter of 2014, we reported a net profit attributable to shareholders of CHF 963 million and diluted earnings per share of CHF 0.26. The result included a net tax benefit of CHF 493 million. All of our business divisions were profitable, resulting in a Group adjusted1 profit before tax of CHF 648 million. Our performance once again demonstrated the fundamental earnings power of our business and its ability to deliver in a challenging environment.
Wealth Management achieved an adjusted1 profit before tax of CHF 694 million, the strongest fourth-quarter result since 2008. Increased net interest income and recurring net fee income reflected our initiatives to grow lending and mortgage balances and to increase mandate penetration, and was also a result of higher invested assets. This was offset by declines in transaction-based income, which fell after a very strong third quarter. Gross margin decreased to 82 basis points, below the target range. Net new money flows from clients in Asia Pacific, ultra high net worth clients globally and clients of the domestic business in Europe remained buoyant, but were partly offset by expected cross-border outflows in Europe. Overall, net new money was CHF 3.0 billion. While outside the target range for the quarter, the business's annualized net new money growth rate for the full year was within the target range. The adjusted1 cost / income ratio remained within the target range during the quarter.
Wealth Management Americas delivered an adjusted1 profit before tax of USD 233 million, reflecting a new quarterly record for operating income which was offset by higher operating expenses. Total operating income increased on higher transaction-based and net interest income, the latter demonstrating continued success in the business's banking and lending initiatives. Net new money increased to USD 5.5 billion, with higher inflows from net recruiting of financial advisors leading to an annualized net new money growth rate of 2.2%, within the target range. The gross margin on invested assets and the adjusted1 cost / income ratio also both remained within the target ranges.
Retail & Corporate recorded an adjusted1 profit before tax of CHF 356 million. Operating income declined after a very strong third-quarter performance. Higher credit loss expenses, as well as lower recurring net fee income and net interest income were partly offset by higher transaction-based income. Annualized net new business volume growth for the retail business declined, and was therefore below the target range as net new client assets were positive while net new loans were slightly negative, in line with the business's strategy to grow selectively. The net interest margin and adjusted1 cost / income ratio both remained within the target ranges.
Global Asset Management posted an adjusted1 profit before tax of CHF 124 million. Higher operating income primarily reflected increased performance fees in traditional investments and global real estate. Operating expenses increased, mostly due to higher charges for litigation, regulatory and similar matters. Excluding money market flows, net new money outflows were CHF 5.8 billion, mostly from traditional investments. The gross margin and adjusted1 cost / income ratio missed the target ranges. While negative in the quarter, the annualized net new money growth rate for the full year was within the target range.
The Investment Bank achieved an adjusted1 profit before tax of CHF 426 million. On a reported basis, operating income was broadly unchanged from the prior quarter. In Corporate Client Solutions, advisory revenues rose on increased participation in merger and acquisition transactions, and equity capital markets benefited from higher revenues from private transactions. This was offset by declines in debt capital markets due to lower activity and higher risk management charges. In Investor Client Services, the equities business delivered a strong performance on higher cash and derivatives results reflecting increased client activity. Costs declined, reflecting a significant decrease in charges for provisions for litigation, regulatory and similar matters, partly offset by a charge for the annual UK bank levy. While the adjusted1 annualized return on attributed equity was below the target for the year, for the quarter it was 22.7% and above the target range. The adjusted1 cost / income ratio was within the target. The Investment Bank was recognized with a number of awards in recent months. These included UBS being named Equity Derivatives House of the Year by International Financing Review and Most Innovative Bank for M&A by The Banker.
Corporate Center – Core Functions reported a loss before tax of CHF 387 million. Operating income was negative, mainly as a result of higher retained central funding costs partly due to new debt issuances throughout the year, as well as higher retained costs. The loss before tax in Corporate Center – Non-core and Legacy Portfolio was CHF 725 million. Balance sheet exposures were taken down ahead of targets. Fully applied Basel III risk-weighted assets were reduced by CHF 6 billion to CHF 36 billion and balance sheet assets by CHF 5 billion. The fourth quarter included losses in the Non-core rates portfolio from unwind and novation activity, and a loss from the termination of certain credit default swap contracts in the Legacy Portfolio, as well as a charge for the annual UK bank levy.
Results by business division and Corporate Center
Outlook – At the start of the first quarter of 2015, many of the underlying challenges and geopolitical issues that we have previously highlighted remain. The mixed outlook for global growth, the absence of sustained and credible improvements to unresolved issues in Europe, continuing US fiscal and monetary policy issues, increasing geopolitical instability and greater uncertainty surrounding the potential effects of lower and potentially volatile energy and other commodity prices, would make improvements in prevailing market conditions unlikely. In addition, recent moves by the Swiss National Bank to remove the EUR / CHF floor and by the European Central Bank to increase its balance sheet expansion via quantitative easing have added additional challenges to the financial markets and to Swiss-based financial services firms specifically. The increased value of the Swiss franc relative to other currencies, especially the US dollar and the euro, and negative interest rates in the eurozone and Switzerland will put pressure on our profitability and, if they persist, on some of our targeted performance levels. Despite ongoing and new challenges, we will continue to execute on our strategy in order to ensure the firm’s long-term success and to deliver sustainable returns for our shareholders.
UBS’s Fourth Quarter 2014 Report, letter to shareholders and slide presentation will be available from 06:45 CET on Tuesday 10 February 2015 at www.ubs.com/investors.
UBS will hold separate presentations of its fourth quarter 2014 results for analysts and the media on Tuesday 10 February 2015. The results will be presented by Sergio P. Ermotti, Group Chief Executive Officer, Tom Naratil, Group Chief Financial Officer and Group Chief Operating Officer, Caroline Stewart, Global Head of Investor Relations, and Hubertus Kuelps, Group Head of Communications & Branding.
Presentation for analysts
- 09:00 (CET)
- 08:00 (GMT)
- 03:00 (US EST)
The presentation for analysts can be followed live on www.ubs.com/quarterlyreporting with a simultaneous slide show.
Presentation for the media
- 11:00 (CET)
- 10:00 (GMT)
- 05:00 (US EST)
The presentation for the media can be followed live on www.ubs.com/media with a simultaneous slide show.
An audio playback of the results presentation will be made available at www.ubs.com/investors under "Investor Relations" later in the day.
UBS Group AG
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