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UBS reports third quarter net profit of CHF 903 million
UBS reports a third quarter 2001 net profit after tax of CHF 903 million. Pre-goodwill, profit was CHF 1,227 million, 29% lower than last quarter and 44% less than achieved during the more favorable market environment of third quarter 2000. The client business remains solid while broad net new money inflows of CHF 34.9 billion in the quarter, and CHF 80.3 billion for the year-to-date, underscore the value investors place on quality advice.
Zurich/Basel, 13 November 2001 - In third quarter 2001, UBS achieved a net profit after tax of CHF 903 million (down 35% from the second quarter and 56% lower year-on-year). Pre-goodwill, profit was CHF 1,227 million, 29% lower than last quarter and 44% less than the same period a year earlier. Business conditions were challenging as economies and securities markets worldwide deteriorated. In addition, the same period last year benefited from significant credit loss recoveries that are unlikely to be repeated. Conditions for equity trading, which was so successful in 2000, were particularly poor.
"Against the background of a difficult general environment, our client business remained solid, and our strong market share growth means we're well positioned for improving economic conditions," said Luqman Arnold, President of the Group Executive Board.
Group net new money inflows for the quarter were CHF 34.9 billion, with positive inflows in all businesses, bringing the total inflow for the year-to-date to CHF 80.3 billion. Inflows in the private clients business units totalled CHF 18.0 billion in the quarter. Total invested assets at the end of the quarter were CHF 2.28 trillion, a decline of 11% over the quarter, due to sharp declines in markets worldwide and the 10% reversal in the USD/CHF exchange rate.
Costs, which fell 8% from the second quarter, were at their lowest level this year thanks to a clear focus on expense management, and lower performance-related compensation. Reduced information technology spending prompted a 6% quarter-on-quarter decline in general and administrative expenses.
Revenues for all key operating businesses held up well with a diverse business mix and a core of asset-based fees proving invaluable. Operating income in the third quarter rose 2% from a year earlier to CHF 8,704 million, as the disruption in transaction revenues and poor equity trading conditions were offset by the inclusion of UBS PaineWebber.
Impact of terrorist attacks in the U.S.
UBS was profoundly shocked and saddened by the terrorist attacks in the U.S. on 11 September 2001 and by the scale of the personal tragedy involved.
"Business considerations appear secondary within the context of recent events and we honor the memory of our employees who lost their lives," Luqman Arnold said, adding, "As a firm, UBS was fortunate not to suffer direct damage to property and could therefore offer support and facilities to others in need."
Performance against Group financial targets:
Annualized return on equity for the first three quarters of 2001 was 15.1%, within the target range of 15-20%.
Basic earnings per share this quarter was CHF 0.97, a decline of 47% from third quarter 2000, and 29% from second quarter 2001. For the year-to-date, EPS remains ahead of the same period in 1999, once adjusted for significant financial events.
The cost/income ratio in third quarter 2001 was 79.9%, compared to 68.0% for the same period a year earlier. The main driver of this increase is the influence on the Group of the relatively high cost/income ratio typical of UBS PaineWebber's business.
The effect of the unstable geopolitical environment on consumer and investor confidence, and on the performance of key world economies, has increased volatility and uncertainty in the world's financial markets. In the short term, deteriorating economic conditions and their effect on market activity will continue to influence UBS's performance.
Avoidance of balance sheet-led growth has kept UBS's credit businesses in good condition and no significant increase in credit loss expenses is foreseen this year. The fourth quarter is normally the quietest part of the year in many of UBS's businesses, and this effect may be magnified this year.
Despite downbeat trading conditions, this year has seen the group's core businesses successfully expand their market share. While maintaining a cautious approach to overall cost management, UBS has continued to make carefully focused investments in corporate finance and the domestic European private banking business, laying the foundations of future growth. In the immediate future the focus will be on adjusting compensation expenses down in line with the challenging environment, rather than instituting widespread staff reductions.
"The continued uncertain outlook prompts us to remain cautious and disciplined. At the same time, we are taking every opportunity that we can to make sure that we come out of this market downturn in a stronger and better position," Luqman Arnold said.
The Private and Corporate Clients business unit produced another very strong result, with profit before tax up 2% from the previous quarter to a near record CHF 538 million, 16% higher than the same quarter last year. Operating income fell 6% quarter-on-quarter, reflecting weaker transaction levels. Costs, at CHF 1,073 million, are now at their lowest level since the merger of Union Bank of Switzerland and Swiss Bank Corporation. Net new money inflows of CHF 4.6 billion were mainly driven by new portfolio management mandates from existing corporate clients. UBS has yet to experience any widespread deterioration in credit quality in Switzerland. The Private Banking business unit's profit before tax was CHF 603 million in the third quarter, down 17% from the second quarter, as a result of lower transaction levels and increased investment in the European wealth management initiative, which continued to make good progress. In the third quarter, another 65 client advisors joined, bringing the total hired this year to 157, with another 60 committed. Asset gathering performance in the five countries targeted by the European wealth management initiative also accelerated, with CHF 2.0 billion in net new money inflows, up from CHF 1.1 billion in second quarter. Private Banking's total net new money of CHF 6.6 billion was again strong, and brings the total inflow this year to CHF 19.0 billion. Asset-based income was resilient, declining just 1% quarter-on-quarter.
Results of the business groups
UBS Asset Management
UBS Asset Management has continued the recovery demonstrated in the first half of the year, with net new money inflows of CHF 12.3 billion, bringing the total for the year to CHF 25.7 billion. Net new money inflows into mutual funds were CHF 10.4 billion. Strong performances from GAM and Swiss investment funds complemented significant inflows in fixed income mandates in the Americas. Institutional net new money for the quarter was CHF 1.9 billion. UBS Asset Management's pre-tax profit decreased slightly to CHF 55 million in third quarter 2001 from CHF 57 million in second quarter, as market declines resulted in lower performance fees and reduced asset based fees, offsetting record mutual fund income.
UBS Warburg's Corporate and Institutional Clients business unit reported a 27% year-on-year reduction in pre-tax profit to CHF 878 million because of tough conditions in equity markets and the very limited amount of corporate finance and capital markets activity. Fixed income revenues were resilient, however, and the foreign exchange business had a strong quarter. Client commission income was stable.
UBS Warburg recorded substantial gains in corporate finance market share, with the business moving from 6th place in Europe a year ago to 1st place so far this year, and from 15th place in the US a year ago to 9th this year.
Costs were tightly managed, with lower performance related compensation driving personnel expenses down 8% year-on-year to CHF 2,021 million. This was despite an 18% increase in headcount, mainly as a result of the PaineWebber merger and continued strategic investment in the corporate finance business. The cost management program drove general and administrative expenses down by CHF 55 million in the period through savings in legal & consulting fees, advertising and information technology equipment.
UBS Warburg has hired conservatively in recent years, and as a result has no significant overcapacity. Investment in headcount is regularly reviewed in line with new assessments of revenue potential, but at present there is no need for widespread cutbacks.
UBS Capital recorded a pre-tax loss of CHF 112 million in third quarter 2001, compared to a loss of CHF 351 million last quarter. Following the conclusion of a strategic review, UBS has decided that it will now focus on private equity asset management, and restrict the level of its direct investments. Without material improvement in liquidity and corporate earnings prospects, it is expected that UBS Capital's results in fourth quarter 2001 and for 2002 will continue to show net losses.
The Private Clients business unit (UBS PaineWebber) suffered this quarter from the usual summer slowdown in revenues, and the effect of the closure of US markets for four days after the terrorist attacks in the US. Revenues were nevertheless comparatively stable, down 7% quarter-on-quarter in USD terms. Pre-tax profit was down 92% from the previous quarter at CHF 8 million. Despite the very difficult environment in the US, especially in September, the business saw net new money inflows of CHF 11.4 billion, an increase of 31% on second quarter, demonstrating the value that clients place on high quality investment advice.
Zurich/Basel, 13 November 2001