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UBS's second-quarter 2015 results
UBS 2Q net profit up 53% to CHF 1.2 billion
Adjusted1 profit before tax CHF 1.6 billion
Diluted earnings per share CHF 0.32
Net profit attributable to shareholders up 73% to CHF 3.2 billion in 1H15
12.0% adjusted1 annualized return on tangible equity in 1H15
Industry-leading fully applied Basel III CET1 ratio up 70 bps to 14.4%
Fully applied Swiss SRB leverage ratio up 10 bps to 4.7%
53,000 hours volunteered by UBS staff in 1H15
Group service company subsidiary to be established in 3Q15
Zurich/Basel, 27 July 2015 – UBS delivered a robust second-quarter adjusted1 profit before tax of CHF 1,635 million despite continued market and economic uncertainty, again demonstrating its fundamental earnings power and the strength of its business model. Net profit attributable to UBS Group AG shareholders was CHF 1,209 million, up 53% compared with the second quarter of 2014, with diluted earnings per share of CHF 0.32.
“I am pleased with the quarter. We maintained our momentum despite ongoing market challenges, and establishing UBS Switzerland AG was another major milestone in enhancing resolvability. We remain focused on building on our early mover advantage with a clear strategy, while increasing effectiveness and efficiency, and further investing for profitable growth.”
Sergio P. Ermotti, Group Chief Executive Officer
Business division highlights
- Wealth Management delivered its best second-quarter result since 2009, with an adjusted1 profit before tax of CHF 769 million and robust net new money of CHF 8.4 billion excluding the effects of its balance sheet and capital optimization program. On a reported basis, net new money was CHF 1.8 billion.
- Wealth Management Americas posted an adjusted1 profit before tax of USD 231 million, with operating income and financial advisor productivity at record levels.
- Retail & Corporate had its best second quarter since 2010, with an adjusted1 profit before tax of CHF 414 million showing strong net new business volume growth for retail clients.
- Global Asset Management reported an adjusted1 profit before tax of CHF 134 million and strong net new money of CHF 8.3 billion, excluding money market flows.
- The Investment Bank reported an adjusted1profit before tax of CHF 617 million with the best second-quarter result in Equities since 2012. It achieved an adjusted1 return on attributed equity of 33.8% without increasing its risk profile.
Results by business division and Corporate Center
Group, divisional and Corporate Center performance overview
Overall, UBS’s second quarter again demonstrated the resilience and diversification of its earnings, the strength of its business model, and the benefits of a strategy defined early and executed with discipline.
UBS Group reported a net profit attributable to shareholders of CHF 1,209 million, up 53% compared with the second quarter 2014, with diluted earnings per share of CHF 0.32. Group adjusted1 profit before tax was CHF 1,635 million, with positive contributions from all divisions and regions. Adjusted1 annualized return on tangible equity for the first six months of 2015 was 12.0%, above the 2015 target of around 10%.
The bank strengthened its leading capital position, with a fully applied Basel III CET1 capital ratio of 14.4% at the end of June, above the target of at least 13.0% and ahead of all other large global banks. Its fully applied Swiss SRB leverage ratio rose to 4.7% in the second quarter, as the Swiss SRB leverage ratio denominator (LRD, fully applied) decreased by CHF 33 billion partly reflecting a substantial reduction in Non-core and Legacy Portfolio assets. Since the third quarter of 2012, UBS has reduced the Non-core and Legacy Portfolio LRD from CHF 293 billion to CHF 70 billion.
The creation of UBS Group AG and UBS Switzerland AG were major milestones to improve the Group's resolvability, in response to the evolving regulatory environment. In June, some 2.7 million clients and approximately CHF 300 billion in assets, primarily from the Swiss Retail & Corporate and Wealth Management businesses, were transferred into UBS Switzerland AG. UBS is the first bank to complete this step in Switzerland. UBS has also implemented a more self-sufficient business and operating model for UBS Limited in the UK, and has submitted plans for the establishment of an intermediate holding company in the US. In the third quarter, UBS will establish a Group service company as a subsidiary of UBS Group AG, into which shared services and support functions of the Group will be transferred over the next several years. This will help ensure the bank can maintain the operational continuity of these critical services in case of resolution. All these measures will allow UBS to qualify for a rebate on the progressive buffer capital requirement applicable to Swiss systemically relevant banks, which should result in lower overall regulatory capital requirements for the Group.
UBS was honored to receive the Euromoney Award for Excellence for Best Global Wealth Manager and, for the fourth year running, Best Bank in Switzerland. In addition, Euromoney named UBS Investment Bank the Best Flow House in North America and Best Equity House in Western Europe, underlining the success of its client-centric model. UBS Neo, the firm’s cross-asset e-commerce platform, was named Best Platform at the annual Digital FX Awards hosted by Profit & Loss magazine.
Wealth Management delivered its best second-quarter result since 2009 with an adjusted1profit before tax of CHF 769 million. The business continued to generate high-quality earnings, with an increase in recurring income reflecting continued success in its strategic initiatives to grow loans and increase mandate penetration, as well as further pricing measures. Adjusted net new money was robust at CHF 8.4 billion, driven by inflows from all regions and segments, most notably its market-leading Asia Pacific franchise, as well as from Ultra High Net Worth clients. The balance sheet and capital optimization program implemented in the first half of 2015 led to net new money outflows of CHF 6.6 billion during the quarter. On a reported basis, net new money was CHF 1.8 billion.
Wealth Management Americas reported an adjusted1 profit before tax of USD 231 million. Total operating income and recurring net fees increased to record levels, and financial advisor productivity remained industry-leading, while pre-tax profit was affected by higher charges for provisions for litigation, regulatory and similar matters and other provisions. Net new money was slightly negative at USD 0.7 billion, reflecting seasonal outflows of approximately USD 3.9 billion associated with income tax payments.
Retail & Corporate posted its best second-quarter result since 2010, with an adjusted1profit before tax of CHF 414 million. The net new business volume growth for retail clients was particularly strong for a second quarter. Credit loss expenses were lower, while general and administrative expenses increased mainly due to higher charges for provisions in the Corporate & Institutional client business.
Global Asset Management recorded strong net new money of CHF 8.3 billion excluding money market flows, with net inflows from third-party clients more than doubling compared to the prior quarter. Adjusted1 profit before tax was CHF 134 million. The quarter saw an increase in net management fees mainly in traditional investments and global real estate, offset by a decline in performance fees in O’Connor and A&Q, in line with market developments in the alternative asset management sector.
The Investment Bank achieved a solid result with an adjusted1 profit before tax of CHF 617 million, following very strong results in the first quarter. Investor Client Services benefited from the best second-quarter result in Equities since UBS accelerated its strategy in 2012, and a solid performance in FX, rates and credit, despite lower client activity and after exceptionally high FX revenues in the first quarter. Corporate Client Solutions improved on the back of higher revenues mainly in debt and equity capital markets and advisory. The business maintained risk profile and allocated resource limits discipline and its results once again demonstrated the strength of its business model and client-centric approach. Adjusted1 return on attributed equity for the second quarter was 33.8%.
Corporate Center – Services recorded a loss before tax of CHF 253 million. Corporate Center – Group Asset and Liability Management reported a profit before tax of CHF 132 million. Corporate Center – Non-core and Legacy Portfolio recorded a loss before tax of CHF 145 million, achieving further progress in de-risking its balance sheet with RWA and the Swiss SRB leverage ratio denominator decreasing by CHF 4 billion and CHF 14 billion respectively.
UBS aims to create long-term value for its investors and clients, while making a positive contribution to the communities in which it operates. In June, for example, UBS launched a campaign to engage up to 50% of its Americas workforce in volunteering programs. To date, UBS Americas employees contributed around 20,000 hours of their time – approximately 70% of 2014's full-year total – volunteering across the Americas. Combined with the time volunteered by other UBS staff around the world, around 53,000 hours were logged in the first half of 2015 to support volunteering programs and give back to society.
As in previous years, seasonal impacts are likely to affect revenues and profits in the third quarter. In addition, many of the underlying macroeconomic challenges and geopolitical issues that we have previously highlighted remain and are unlikely to be resolved in the foreseeable future. Despite ongoing and new challenges, we continue to be committed to the disciplined execution of our strategy in order to ensure the firm’s long-term success and to deliver sustainable returns for our shareholders.
UBS expects to revalue its deferred tax assets (DTA) in the third quarter of 2015 as part of its annual planning process, and may consider extending the forecast period for US DTA recognition to seven years from six years. If a determination to change the forecast period is made, the combined effect of updated business forecasts and the extension of the forecast period for US DTA could result in a net upward DTA revaluation of around CHF 1.5 billion.
Consistent with changes in the manner in which operating segment performance is assessed, beginning in the second quarter of 2015, UBS now applies fair value accounting for certain internal funding transactions between Corporate Center – Group ALM and the Investment Bank and Corporate Center – Non-core and Legacy Portfolio rather than applying amortized cost accounting. This treatment better aligns with the mark-to-market basis on which these internal transactions are risk managed within the Investment Bank and Corporate Center – Non-core and Legacy Portfolio. The terms of the funding transactions remain otherwise unchanged. In connection with this change, UBS now presents own credit gains and losses on financial liabilities designated at fair value in Corporate Center – Group ALM instead of Corporate Center – Services. Prior periods have been restated to reflect these changes.
As a result of ongoing efforts to optimize our legal entity structure, UBS anticipates that some foreign currency translation gains and losses previously booked directly into equity through other comprehensive income will be released into profit and loss due to the sale or closure of branches and subsidiaries. In the second half of 2015, UBS expects to record net foreign currency translation losses of around CHF 120 million related to these disposals, although gains and losses could be recognized in different periods. Consistent with past practice, these gains and losses will be treated as adjusting items. The release of foreign currency translation losses to profit and loss will not affect shareholders' equity or regulatory capital.
In the second quarter of 2015, UBS's progressive capital buffer requirement for 2019 was reduced to 4.5% from 5.4%, reflecting updated LRD and market share information for 2014 provided by FINMA in June 2015. As a result UBS's total capital requirement on a fully-applied basis decreased to 17.5% for 2019 and 12.6% on a phase-in basis as of 30 June 2015.
UBS believes that the industry continues to operate in an environment where charges associated with litigation, regulatory and similar matters will remain elevated for the foreseeable future and the bank continues to be exposed to a number of significant claims and regulatory matters.
Quarterly Report and Presentation
In order to be transparent and counter certain incorrect and misleading information that has become public, UBS chose to release its second quarter 2015 results one day early.
UBS’s second quarter 2015 slide presentation will be available from 06:00 CEST on Monday, 27 July 2015 at www.ubs.com/quarterlyreporting. The Second Quarter Report and letter to shareholders will be available from 06:45 CEST on Tuesday, 28 July 2015 at www.ubs.com/quarterlyreporting.
UBS will hold a presentation of its second quarter 2015 results on Monday, 27 July 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.
- 10:00–12.00 (CEST)
- 09:00–11.00 (BST)
- 04:00–06.00 (US EDT)
The presentation for analysts can be followed live on www.ubs.com/quarterlyreporting with a simultaneous slide show.
An audio playback of the results presentation will be made available at www.ubs.com/investors later in the day.
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