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UBS reports full-year net profit of CHF 4,973 million, and fourth quarter net profit of CHF 1,106 million
UBS reports net profit after tax for 2001 of CHF 4,973 million, 36% less than the previous year. Pre-goodwill, net profit was 28% lower than was achieved in the markedly stronger markets of 2000 (adjusted for significant financial events1). Although UBS is still constrained by the difficult economic environment, its businesses are well positioned with strong client franchises and growing market share. Net new money inflows totalled CHF 102 billion in 2001, with Private Banking contributing CHF 22.5 billion, UBS PaineWebber generating CHF 36.0 billion and UBS Asset Management CHF 34.9 billion.
UBS posted 2001 net profit after tax of CHF 4,973 million, 36% less than the previous year. Pre-goodwill, net profit was CHF 6,296 million, 28% lower than during the considerably stronger markets of 2000 (adjusted for significant financial events1 in 2000). Private equity investment losses and the costs of funding the PaineWebber merger contributed significantly to the drop in profits, while core operating businesses proved resilient. Overall, UBS made significant progress in 2001, succesfully integrating UBS PaineWebber, building up its European wealth management business, and expanding its investment banking presence, particularly in the U.S.
"Despite the tough market environment, our key businesses have held up well. We are clearly seeing the benefits of our strict cost discipline and strategic focus, and we expect to continue gaining market share in the coming year," said President Peter Wuffli.
Operating income in 2001 was CHF 37,114 million, up 2% from a year earlier, as the addition of UBS PaineWebber's business compensated for the difficult market conditions. Operating expenses were tightly controlled, with significantly lower performance-related compensation rates. Average variable compensation per head in 2001 was 23% lower than in 2000.
Total credit loss expenses were CHF 498 million for the year, compared to a net recovery of CHF 130 million in 2000. In Switzerland, recoveries of provisions have declined, in comparison to the exceptional level of 2000. Outside Switzerland, UBS Warburg benefited from its prudent approach to risk as the global credit environment declined .
Clients contributed CHF 102 billion in net new money in 2001. Private Banking attracted CHF 22.5 billion of inflows, an eight-fold increase over 2000. UBS Switzerland's Private & Corporate Clients unit saw CHF 8.5 billion in inflows. The Private Clients business centered on UBS PaineWebber received CHF 36.0 billion, continuing its excellent record, while UBS Asset Management posted a net new money inflow of CHF 34.9 billion. Total invested assets at the end of the year were CHF 2,457 billion, almost unchanged from a year earlier.
Fourth quarter results
Net profit after tax in the fourth quarter was CHF 1,106 million, 22% higher than in third quarter 2001 and 24% lower than in fourth quarter last year. Pre-goodwill, profit was CHF 1,436 million, 17% higher than the third quarter. The improvement against the third quarter was driven by a record contribution from UBS Switzerland's Private & Corporate Clients unit, reduced credit losses, tight control of personnel expenses and a lower tax rate. Compared to the fourth quarter a year earlier and adjusted for significant financial events , pre-goodwill net profit was down 24%, reflecting the effects of weaker markets and another difficult quarter for private equity valuations.
Operating income fell 9% from the fourth quarter of 2000 (down 3% from third quarter 2001). Once again, the private client businesses provided a stable base, and net fee and commission income rose 4% quarter-on-quarter, now comprising 58% of total revenue. Performance-related compensation for the year has been significantly reduced in the light of market conditions and UBS's financial performance, leading to personnel expenses this quarter falling 9% from the third quarter. Overall, costs are at their lowest level since the PaineWebber merger.
Credit loss expenses of CHF 115 million in fourth quarter 2001 compare to CHF 171 million in the third quarter and CHF 95 million a year earlier. UBS had no material, unhedged exposure to any of the widely publicized international corporate default cases of the last few months.
Group net new money inflows for the quarter were CHF 21.7 billion, with inflows in the private client business units of CHF 12.6 billion.
Performance against Group financial targets:
Pre-goodwill and adjusted for significant financial events1 in 2000 and 1999:
Return on equity for 2001 was 14.8%, just below the target range of 15-20%, but significantly below the 24.3% achieved last year. In 2000, return on equity benefited from the exuberant markets of the first half-year, while 2001 has seen much weaker market conditions combined with higher average equity resulting from the merger with PaineWebber in fourth quarter 2000.
Over the whole year, basic earnings per share were CHF 4.97, a decline of 32% from 2000, but still 21% higher than the level achieved in 1999. In fourth quarter, basic earnings per share were CHF 1.14, 23% lower than fourth quarter 2000.
The cost/income ratio for the full year 2001 was 77.3%, up from 69.2% last year. The main drivers of this increase are the influence on the Group of the relatively high cost/income ratio typical of UBS PaineWebber's business, and the write-downs experienced in the private equity business in 2001. Cost control remains a key focus and the cost/income ratio fell from 79.9% in third quarter to 78.7% in fourth quarter.
UBS Warburg Energy
UBS recently concluded a licensing agreement through which UBS Warburg has entered the energy trading business, based on Enron's US electricity and natural gas trading operations. The new business is branded "UBS Warburg Energy". The terms of the transaction give Enron a residual interest in the income of the operations, but UBS Warburg has not agreed to assume any of Enron's past, current or future liabilities.
Prior to its collapse, Enron was the undisputed leader in this market. It will take time to build up this business, but UBS Warburg is confident that the combination of its management skills and UBS's financial strength with the technology, staff and other resources of the Enron trading business will again prove highly attractive to clients and trading partners. Value at Risk (VaR) of the energy business may reach around CHF 100 million initially, but UBS Warburg expects an offsetting diversification effect, which means that overall VaR usage within UBS Warburg is expected to rise by less than this amount.
European Wealth Management
The implementation of the European wealth management initiative announced a year ago is well on track and producing good results. Net new money in fourth quarter was CHF 1.7 billion, in line with previous quarters, despite the difficult market conditions. For the year net new money was CHF 5.6 billion. Hiring plans progressed well, with the number of client advisors in the five target countries (Germany, France, Italy, Spain and UK) climbing to 370 by December 2001. This represents an increase of 51 over the quarter and of 208 over the year. A further 40 newly hired advisors started on 1 January 2002, bringing the total hiring in 2001 to 248, in line with UBS's intention to recruit around 250 advisors a year. Expanding the European Private Banking branch network is another central component of the initiative. After the opening of an office in Lyons in June 2001, the fourth quarter saw the opening of another two new offices, in Seville and Marseilles, and last week an office in Bordeaux was added.
Share buyback program
Given its strong capital generation, UBS intends to establish a further share buyback program starting on March 6, 2002, exclusively for capital reduction purposes. Shares will be repurchased under a second trading line on the SWX Swiss Exchange. The Board of Directors has set the maximum value of shares that could be repurchased under the program at CHF 5 billion.
The current program will terminate when the new one starts. In 2001, 23,064,356 shares were purchased under the current program, worth CHF 1.8 billion. These shares will be cancelled following approval by the Annual General Meeting on April 18, 2002. During fourth quarter, the Group's Tier 1 Capital ratio decreased from 11.8% to 11.6%.
The Board of Directors will recommend to the Annual General Meeting on April 18, 2002 that UBS make a par value repayment of CHF 2.00 per share, consistent with last year's total per share distribution to shareholders of CHF 2.03.
Significant financial events in 2000:
In second quarter, UBS's previously established liability for the US Global Settlement regarding World War II related claims was increased by CHF 200 million pre-tax.
In fourth quarter, UBS's previously established liability for the US Global Settlement regarding World War II related claims was offset by a credit of CHF 50 million pre-tax, as a result of contributions from Swiss industrial companies.
In fourth quarter, UBS recorded a CHF 290 million pre-tax restructuring charge relating to the integration of former PaineWebber businesses into UBS.
(See UBS Financial Report 2000 for the full definition of Significant Financial Events in 2000 and 1999).
Results of the business groups
(adjusted for significant financial events 2 2000)UBS Switzerland
The Private and Corporate Clients business unit reported a record result this quarter, with CHF 543 million in profit before tax, capping a very strong year. For the full-year, profit before tax rose 8% to CHF 2,147 million. Operating expenses, at CHF 1,045 million in the fourth quarter, and the cost/income ratio at 61%, were both at an all-time low. For the full year, operating expenses dropped 5% to CHF 4,438 million. General and administrative expenses have now fallen for two years running. Personnel expenses also fell, with headcount down 6% this year and 22% since the UBS/SBC merger. The implementation of risk-adjusted pricing and the Swiss economy's recent strength have led to a significant improvement in credit quality. For the coming year, the unit is expected to continue to keep profitability at levels that compare favorably with peers in the retail and commercial banking sector.
Private Banking's profit before tax fell 2% in the fourth quarter to CHF 591 million. Lower transaction volumes and the costs of investing in the European wealth management initiative led full year profit before tax to fall 16% to CHF 2,703 million. In the fourth quarter, net new money inflows were CHF 3.5 billion, down from the third quarter, but above the CHF 2.8 billion recorded for the whole of 2000. Total 2001 net new money inflow of CHF 22.5 billion demonstrates the success UBS has had in re-energizing its asset gathering performance. Invested assets rose 6% to CHF 682 billion between September 30 and December 31, and were down only 1% for the full year, despite the poor performance of securities markets.
UBS Asset Management
UBS Asset Management posted profit before tax of CHF 67 million in the fourth quarter, up from CHF 55 million in the third quarter. For the full year, profit before tax was CHF 231 million, down 28% from 2000 although operating income was up 8% at CHF 2,110 million. Overall, the increased income resulting from a new investment fund pricing structure, the acquisition of Brinson Canada and the inclusion of Brinson Advisors was more than offset by higher spending on growth initiatives. UBS Asset Management reported a second straight year of strong relative investment performance, managing three of the top five balanced funds in the UK in 2001. Total invested assets in the fourth quarter rose 8% to CHF 672 billion, and they were up 5% for the full year. Net new money was CHF 9.2 billion for the quarter and CHF 34.9 billion for the year, reflecting clients' recognition of strong relative investment performance.
UBS Warburg's Corporate and Institutional Clients business unit had a very strong relative performance, with profit before tax of CHF 916 million for the fourth quarter, a 3% reduction from the same quarter a year earlier, but up 4% on the third quarter. Equity trading performance recovered slightly from the third quarter, but opportunities remained limited compared to the more active markets experienced in 2000. Over the full year, profit before tax was CHF 4,256 million, a decline of 15% over 2000. In corporate finance however, UBS continued to grow market share, with a 4.5% share of fees in 2001, compared to 3.6% in 2000.
In the fourth quarter, the unit generated revenues of CHF 3,344 million, down 12% from the same quarter a year earlier. For the full year revenues were down 11% at CHF 16,011 million.
Personnel expenses this quarter reached their lowest level since fourth quarter 1999, at CHF 1,606 million, falling 7% from fourth quarter 2000 and 21% from last quarter, largely due to reductions in performance-based compensation. Full year personnel expenses fell 10% to CHF 8,339 million. Compared to fourth quarter last year, general and administrative expenses decreased 25% to CHF 642 million, reflecting cost control measures introduced in 2001. Full year general and administrative expenses were down 3% at CHF 2,705 million.
UBS Capital reported a loss before tax of CHF 287 million in the fourth quarter, down from a CHF 56 million profit for the same period a year earlier. Challenging markets and a continued slowdown in corporate activity meant there were no opportunities for significant divestments. For the full year, the loss before tax was CHF 1,032 million, against a profit of CHF 173 million in 2000, with the results reflecting the lack of divestments, and the deteriorating economic environment which posed problems for some of the companies in the portfolio. In 2002, results are expected to continue to show net losses unless there is a material improvement in economic conditions.
The Private Clients unit, centered on UBS PaineWebber posted a profit before tax of CHF 23 million in the fourth quarter, up from CHF 8 million in the previous quarter, as clients' transaction activity built up from the lows of third quarter. For the full year, profit before tax was CHF 258 million. Headcount decreased by 5% through the year, particularly in support areas. Net new money for fourth quarter was CHF 9.1 billion, down from CHF 11.4 billion in third quarter reflecting the lower levels of investor confidence in the US.
The Corporate Center reported a loss before tax of CHF 77 million in the fourth quarter, against a profit of CHF 224 million a year earlier. For the full year, the loss before tax was CHF 236 million, compared to a profit of CHF 384 million in 2000. The results include the difference between the statistically calculated losses charged to business units and the actual credit loss reported in the Group financial accounts. The statistically calculated loss exceeded the actual loss in both years leading to a positive contribution in Corporate Center, however, in 2001 the difference was only CHF 236 million, as opposed to CHF 1,161 million in 2000, when UBS experienced exceptional rates of recoveries.
Changes to UBS reporting structure in 2002
From the beginning of 2002, the Private Clients business unit of UBS Warburg became a separate Business Group within UBS and its name was changed to UBS PaineWebber, reflecting its principal business. This new structure will be reflected in our financial reporting with effect from first quarter 2002. UBS will provide restated figures for 2000 and 2001 reflecting the new Business Group structure and associated changes in the treatment of goodwill and other costs, and expects to publish these at least two weeks prior to our First Quarter 2002 report.
Zurich/Basel, 14 February 2002