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UBS reports first quarter net profit of CHF 1,214 million
UBS reports net profit of CHF 1,214 million in first quarter 2003, down 11% from the same quarter a year earlier. Before goodwill and excluding the net gain from the sale of Hyposwiss in first quarter 2002, net profit was 7% lower. Despite tough markets, UBS managed to increase shareholder returns by keeping a strong grip on costs and managing capital resources tightly. UBS's wealth management businesses (Private Banking and UBS PaineWebber) achieved strong net new money inflows of CHF 11.1 billion, with a record inflow into the European wealth management initiative.
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UBS reports net profit of CHF 1,214 million, a decline of 11% from the first quarter a year earlier. Before goodwill and excluding the gain from the sale of Hyposwiss in first quarter 2002*, net profit was 7% lower. This decrease is almost entirely attributable to currency moves - mainly the US dollar's 20% weakening against the Swiss franc between the two periods.
Compared to fourth quarter 2002 and before goodwill, net profit rose 35% after excluding the writedown related to the withdrawal of the PaineWebber brand** and the gain from the sale of Klinik Hirslanden***.
"UBS has again delivered robust results in a tough environment. We focused on protecting and enhancing returns for our shareholders. We pushed down our cost/income ratio to its lowest level since the middle of 2001, and delivered a higher return on equity than this time last year," said Peter Wuffli, President of the Group Executive Board.
About half of the change in both income and expense compared to the same quarter a year earlier was driven by currency movements.
Operating income declined 19% compared to a year earlier. Adjusted for the gain from the sale of Hyposwiss1, income was 18% lower. Apart from the currency effects, the decrease was mainly due to poor equities trading conditions and low equity market levels, affecting asset-based revenues. Encouragingly, private equity writedowns at UBS Capital returned to more moderate levels, decreasing to CHF 123 million in first quarter 2003 from CHF 383 million in the same quarter a year earlier. Fixed income trading revenues were very strong, reflecting a buoyant trading environment that benefited from low interest rates and a steep yield curve.
Credit businesses again proved resilient, despite another quarter of generally weak economic conditions. Actual net credit loss expense during the quarter amounted to CHF 104 million compared to CHF 85 million in the same quarter in 2002.
Costs remained under tight control. Operating expenses fell 20% from the same quarter a year earlier, to their lowest level since the merger with PaineWebber. Besides currency effects, the decrease reflects sharp declines in personnel and in general and administrative expenses, down 21% and 18% respectively. Performance-related compensation also fell.
Headcount declined a further 666 to 68,395 in the three months since 31 December 2002 as processes and structures were streamlined. At the same time, capabilities were selectively expanded in areas with growth potential.
Net new money in UBS's wealth management businesses (Private Banking and UBS PaineWebber) for the quarter was CHF 11.1 billion - a strong result that shows the continued confidence clients place in UBS's financial advice, its stability and strength. In the European wealth management business, net inflows reached a record of CHF 3.0 billion. Inflows were positive across all private banking markets. In the US, UBS PaineWebber reported net new money of CHF 3.7 billion, comparing favorably to industry experience.
Merger of Cantrade, Bank Ehinger and Armand von Ernst
On 18 February 2003, UBS announced the creation of a holding company for its five fully owned independent private banking subsidiaries and GAM, its specialist asset manager.
The three Swiss-German private banking subsidiaries (Berne-based Armand von Ernst, Basel's Bank Ehinger and Zurich's Cantrade) are now merging under the name Ehinger & Armand von Ernst. The merger is legally retroactive to 1 January 2003 and full operational integration of the three banks is expected to be complete by 1 January 2004. The new bank, headquartered in Zurich, with branches in Basel and Berne, will be one of the most important providers of private banking services in the Swiss-German speaking regions of Switzerland.
GAM, Ferrier Lullin in Geneva and Banco di Lugano are not affected by the merger and will continue to service their clients under their present brands.
Markets and trading conditions are tough and will likely remain so.
"While some further degree of volatility cannot be excluded, we do feel that the downward pressure on our industry from the business and market environment could be beginning to ease and that the worst earnings declines may be behind us," Peter Wuffli said. "Our businesses are proving highly competitive and we remain convinced that our strategy is the right one."
Although the timing of a return to sustained revenue growth is hard to predict, UBS is still in a position to protect and enhance shareholder returns by flexing costs and tightly managing capital. At the same time, because of its successful strategic initiatives, UBS continues to be well placed to profit from growth opportunities as they arise.
Financial ratios as reported
Annualized return on equity in first quarter 2003 was 13.2%, compared to 12.3% a year earlier. Basic earnings per share were CHF 1.05 in first quarter, against CHF 1.10 in the same quarter a year earlier. The cost/income ratio was 78.4% in first quarter 2003, down from 80.1% a year earlier.
Performance against Group financial targets
(pre-goodwill and adjusted for significant financial events****)
UBS management sets the Group's 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:
The Group's annualized return on equity for first quarter 2003 was 15.8%, up from 15.2% in the same quarter a year ago and back within our target range of 15-20%. The ongoing reduction of equity through share buyback programs more than offset the market-related decline in earnings.
Basic earnings per share in first quarter 2003 were CHF 1.26, just below CHF 1.27 in the same quarter last year. The 7% decline in profit was again offset by the reduced average number of shares outstanding, driven by ongoing share buyback programs.
The cost/income ratio this quarter was 75.3%, a decrease from 77.9% in first quarter last year and the lowest since second quarter 2001, as tight cost control complemented the fall in private equity writedowns.
Full Media Release:
Further information on UBS's quarterly results is available in the Investors & Analysts section.
1Q2003 Report (pdf and interactive version)
1Q2003 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 May 2003:
0300 US EDT
Webcast playback will be available from 1400 CET on 13 May, with a bookmarked version at 1800 CET the same day.
Zurich / Basel, 13 May 2003