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UBS's third-quarter 2015 results
UBS 3Q net profit CHF 2.1bn
Net profit attributable to shareholders CHF 2.1bn; diluted earnings per share CHF 0.54
Adjusted1 profit before tax CHF 1.0bn
Fully applied Swiss SRB Basel III CET1 capital ratio of 14.3%
Fully applied Swiss SRB leverage ratio up 30 bps to 5.0%, of which CET1 3.3%
14.5% adjusted RoTE year-to-date, expect to outperform full-year target 2
UBS named industry group leader in the Dow Jones Sustainability Indices
Zurich, 3 November 2015 – UBS delivered a solid third-quarter adjusted1 profit before tax of CHF 979 million in a very challenging economic environment. Net profit attributable to UBS Group AG shareholders was CHF 2,068 million, with diluted earnings per share of CHF 0.54. The third quarter included a net tax benefit of CHF 1,295 million, mainly related to a net upward revaluation of deferred tax assets, CHF 592 million of net charges for provisions for litigation, regulatory and similar matters and CHF 298 million of net restructuring charges.
“I’m pleased with the quarter. We stayed close to our clients in a very challenging environment. Disciplined execution and our diversified business model allowed us to deliver strong returns for our shareholders while continuing to invest in our future.”
Sergio P. Ermotti, Group Chief Executive Officer
Business division highlights
- Wealth Management delivered an adjusted1 profit before tax of CHF 698 million and adjusted net new money of CHF 3.5 billion, excluding the effects of UBS’s balance sheet and capital optimization program. Recurring income benefitted from increased mandate penetration and the continued effects of pricing initiatives.
- Wealth Management Americas posted an adjusted1 profit before tax of USD 287 million, with recurring net fee income and net interest income at record levels. Productivity per advisor for revenue and invested assets was industry-leading. Net new money was positive at USD 0.5 billion.
- Retail & Corporate had its best result for the first nine months of the year since 2010, with an adjusted1 third-quarter profit before tax of CHF 428 million, good net new business volume growth for retail clients, and net new client accounts hitting a new record.
- Asset Management reported an adjusted1 profit before tax of CHF 137 million. Excluding money market flows, net new money outflows were CHF 7.6 billion, driven by client liquidity needs.
- The Investment Bank achieved an adjusted1 profit before tax of CHF 614 million with a strong performance in both Equities and FX, Rates and Credit compared to the prior year quarter. The business maintained its strict risk profile and resource limit discipline.
Results by business division and Corporate Center
Third quarter 2015: Divisional and Corporate Center performance overview
Wealth Management delivered a resilient adjusted1 profit before tax of CHF 698 million against a backdrop of high market volatility, pronounced deleveraging in Asia and very low client activity levels. Net interest income rose on higher lending and deposit revenues. Despite lower average invested assets, recurring net fee income fell only slightly, as it was partly offset by increased mandate penetration, up 70 basis points to 27% of invested assets, and the continued effect of pricing initiatives. Transaction-based income declined primarily in Asia Pacific and Europe, mainly reflecting reduced client activity in response to market volatility. Net new money adjusted for the outflows from the balance sheet and capital optimization program was CHF 3.5 billion, driven by inflows from all regions.
Wealth Management Americas delivered a solid adjusted1 profit before tax of USD 287 million, up 24% on the previous quarter. Overall operating income was broadly unchanged and productivity per advisor for revenue and invested assets was industry-leading. Recurring income reached a new record as net fee income rose on higher managed account fees and net interest income increased mainly from loan and deposit growth. Costs fell primarily on lower net charges for provisions for litigation, regulatory and similar matters and other provisions. Net new money was USD 0.5 billion.
Retail & Corporate had its best result for the first nine months of the year since 2010 with an adjusted1 third-quarter profit before tax of CHF 428 million. Net interest income from lending and deposits increased slightly as did recurring net fee income, while credit loss expenses were negligible in the quarter. Annualized net new business volume growth for retail clients was good at 2.5%, mainly driven by net new client assets and, to a lesser extent, net new loans, in line with its strategy to grow its high-quality retail loan business moderately and selectively. Year-to-date net new client accounts for retail customers hit a new record level, up 35% year-on-year, solidifying UBS’s position as the leading bank in its home market.
Asset Management recorded an adjusted1 profit before tax of CHF 137 million. Management fees increased primarily in Traditional Investments and Global Real Estate. Performance fees also rose, predominantly in Global Real Estate. Excluding money market flows, net new money outflows were CHF 7.6 billion, largely from lower margin passive products, driven by client liquidity needs.
The Investment Bank delivered a very strong performance with an adjusted1 profit before tax of CHF 614 million. Despite the challenging market conditions, revenues were up 6% year-on-year. Compared to the prior year, Investor Client Services performed well with increased revenues in both Equities and FX, Rates and Credit. Costs were well controlled, with expenses falling compared to both the prior quarter and the prior year. The adjusted return on attributed equity for the third quarter was 33.6%.
Corporate Center – Services recorded a loss before tax of CHF 257 million. Corporate Center – Group Asset and Liability Management reported a loss before tax of CHF 111 million. Corporate Center – Non-core and Legacy Portfolio recorded a loss before tax of CHF 818 million, driven by additional net charges for provisions for litigation, regulatory and similar matters, while achieving further progress in reducing the Swiss SRB leverage ratio denominator by CHF 12 billion to CHF 59 billion.
Capital and costs
UBS remains the best-capitalized large global bank, with a fully applied Swiss SRB Basel III CET1 capital ratio of 14.3% as of 30 September 2015, above the bank’s target of at least 13%. UBS’s fully applied Swiss SRB leverage ratio increased to 5.0%. The bank issued CHF 1.5 billion of high-trigger additional tier 1 (AT1) perpetual capital notes in the third quarter. Also during the quarter, UBS completed its inaugural issuance of senior unsecured debt which will contribute to its total loss-absorbing capacity (TLAC), successfully placing CHF 4.2 billion of senior unsecured notes in anticipation of international regulatory developments, including revisions in the Swiss too big to fail framework.
The bank remains fully committed to its cost reduction target of CHF 2.1 billion and made good progress in the third quarter, while continuing to carry significant regulatory costs. Improved efficiency allows UBS to continue its investments in technology, compliance and risk control, while creating the right cost structure to support long-term growth, particularly in Asia and the Americas.
Changes to UBS annual performance targets and key expectations
In light of actual and forecasted changes in macroeconomic conditions and the announcement of a newly proposed too big to fail regulation, UBS has amended certain external performance targets and expectations for the Group and the business divisions for 2016 and future years. An overview of amended annual performance targets and expectations is provided below. These performance targets exclude, where applicable, items that management believes are not representative of the underlying performance of UBS’s businesses, such as restructuring charges and gains and losses on sales of businesses and real estate. The performance targets assume constant foreign currency translation rates unless otherwise indicated. The following performance targets and expectations have been amended:
- Adjusted cost/income ratio target remains 60–70%, with a short- to medium-term expectation of 65–75%.
- UBS expects to achieve an adjusted return on tangible equity (RoTE) in 2016 at approximately the same level as 2015, an adjusted RoTE of approximately 15% in 2017 and targets an adjusted RoTE of above 15% from 2018 onwards.
- Group risk-weighted assets (RWA) are expected to trend around CHF 250 billion in the short to medium term mainly due to regulatory inflation.
- Group BIS Basel III leverage ratio denominator (LRD) is expected to trend around CHF 950 billion in the short to medium term.
- The RWA limit for the Investment Bank has been replaced with an RWA expectation of around CHF 85 billion in the short to medium term.
- The funded assets limit for the Investment Bank has been replaced with a BIS Basel III LRD expectation of around CHF 325 billion in the short to medium term.
- The Investment Bank will continue to represent no more than 30–35% of the Group’s total LRD and RWA.
- The separate aggregate net cost reduction targets for Corporate Center – Services and Corporate Center – Non-core and Legacy Portfolio have been replaced with an equal Corporate Center aggregate net cost reduction target of CHF 2.1 billion by year-end 2017, of which CHF 1.4 billion by year-end 2015.
Awards and achievements
UBS was honored to be named "Outstanding Global Private Bank – Overall" as well as "Outstanding Global Private Bank – Asia Pacific" by Private Banker International. Additionally, UBS was awarded Private Banker International’s Most Innovative Digital Offering award. UBS was also named "Most Innovative Investment Bank for Financial Institutions" by The Banker in the Investment Banking Awards 2015. Staying at the forefront of innovation and providing best-in-class digital solutions for clients is a key priority for UBS. As part of this effort, the bank launched The UBS Future of Finance Challenge, a competition for entrepreneurs and technology startups seeking ideas and solutions that will support the transformation of the industry. Over 600 entries were received from startups in over 50 countries. Regional finals are taking place in Singapore, London, New York and Zurich and three winners from each region will be invited to the Global Final in Zurich in December.
Sustainable performance is one of UBS’s key principles. During the quarter, the bank was named the industry group leader in the Dow Jones Sustainability Indices (DJSI), which acknowledged the bank’s support for clients and communities and the integration of societal and financial performance. UBS also joined the RE100 initiative, which urges the world’s most influential companies to use only renewable power. UBS has committed to source 100% of its electricity from renewable sources by 2020. This will lead to a 75% reduction of its greenhouse gas footprint by 2020 compared with 2004 levels. In Switzerland, Germany and the UK, 100% of the electricity UBS uses is already from renewable sources. In its home market, UBS has increased energy efficiency by more than 30% since 2000.
During the third quarter, UBS launched its first global brand campaign in five years. The campaign illustrates how UBS works with clients to achieve their goals and ambitions. The campaign’s tagline "For some of life’s questions you’re not alone. Together, we can find an answer," reflects UBS’s promise to embrace client goals as its own and work together to help find the best answers. UBS will also support an international exhibition of portraits by Annie Leibovitz entitled "Women". The tour will launch in London in January 2016 and travel to 10 global cities over 12 months. The photographs from the exhibition will form part of the UBS Art Collection.
Many of the underlying macroeconomic challenges and geopolitical issues that we have highlighted in previous quarters remain and are unlikely to be resolved in the foreseeable future. In addition, recently proposed changes to the too big to fail regulatory framework in Switzerland will cause substantial ongoing interest costs for the firm. We also continue to see headwinds from interest rates which have not increased in line with market expectations, negative market performance in certain asset classes and the weak performance of the euro versus the Swiss franc during the year. We are executing the measures already announced to mitigate these effects as we progress towards our targeted return on tangible equity in the short to medium term.
Our strategy has proven successful in a variety of market conditions. We remain committed to our strategy and its disciplined execution in order to ensure the firm’s long-term success and deliver sustainable returns for our shareholders.
In the fourth quarter of 2015, UBS expects to recognize net additional deferred tax assets (DTA) of approximately CHF 500 million, following the third quarter DTA net upward movement of CHF 1,513 million mainly related to the US, reflecting updated profit forecasts and an extension of the relevant taxable profit forecast period used in valuing its DTA.
As a result of ongoing efforts to optimize our legal entity structure, we anticipate 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 UBS AG branches and subsidiaries. As a result, we currently expect to record net foreign currency translation losses of around CHF 30 million in the fourth quarter of 2015 and of around CHF 180 million in 2016, although gains and losses could be recognized in different periods. Consistent with past practice, these gains and losses will be treated as adjusting items and recorded in Corporate Center – Group Asset and Liability Management (Group ALM). The release of foreign currency translation losses to profit and loss will not affect shareholders’ equity or regulatory capital.
UBS’s Third Quarter 2015 Report, letter to shareholders and slide presentation will be available from 06:45 CEST on Tuesday, 3 November 2015 at www.ubs.com/quarterlyreporting.
UBS will hold a presentation of its third quarter 2015 results on Tuesday, 3 November 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.
- 09.00–11.00 (CET)
- 08.00–10.00 (GMT)
- 03.00–05.00 (US EST)
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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