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UBS reports 2002 net profit of CHF 3,535 million and fourth quarter net loss of CHF 101 million (including non-cash brand writedown of CHF 953 million after tax)
UBS reports net profit for 2002 of CHF 3,535 million, 29% less than 2001 - with the drop largely due to a non-cash writedown of CHF 953 million after tax related to the withdrawal of the PaineWebber brand. Pre-goodwill, and adjusted for the writedown and stripping out gains from divestments, net profit in 2002 fell to CHF 5,529 million, down 12% from a year earlier. Continued cost discipline and a focus on growth leave UBS well positioned for further competitive gains. UBS's wealth management businesses achieved net new money inflows of CHF 35.1 billion in 2002 while UBS Warburg increased its global investment banking market share to 5.0% from 4.4% in 2001.
UBS reports 2002 net profit of CHF 3,535 million, a decline of 29% compared to CHF 4,973 million a year earlier. The decrease in net profit reflects an aftertax writedown of CHF 953 million related to the withdrawal of the PaineWebber brand. Recorded as an intangible asset in the UBS balance sheet, the brand was written down in fourth quarter 2002 following the decision to adopt the single UBS brand from June 2003 onwards. Pre-goodwill amortization, adjusted for the writedown and deducting gains from divestments, net profit in 2002 fell to CHF 5,529 million, down 12% from 2001.
"In one of the most challenging years ever for the financial industry, our businesses were remarkably resilient and competitive, gaining market share by continuing to invest in growth," said Peter Wuffli, President of the Group Executive Board.
Operating income in 2002 declined 8% from a year earlier. Adjusted for significant financial events *, the decline was 9%, reflecting investors' lack of appetite for markets, less buoyant trading conditions, disappointing ongoing losses in the private equity business and lower asset levels, impacting recurring fees. Invested assets, at CHF 2,037 billion on 31 December 2002, were down 17% from CHF 2,448 billion a year earlier due to currency and market movements.
Throughout 2002, both compensation and non-personnel expenses were kept in line with market and revenue developments. Total operating expenses were down 3% year-on-year. Excluding the brand writedown, they decreased 7% to reach their lowest level since PaineWebber joined UBS. Average variable compensation per head in 2002 was 8% lower than in 2001.
UBS did not build up significant overcapacity during the peak of the last business cycle, and has therefore been able to reduce headcount gradually as economic conditions weakened - without making drastic cuts. Over 2002, headcount decreased by 924 to 69,061, the lowest level since PaineWebber joined UBS.
"We streamlined processes and structures in specific areas. At the same time, however, we have expanded our capabilities where we see positive growth potential," said Peter Wuffli.
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Growth in 2002
The Group's wealth management businesses - Private Banking and UBS PaineWebber - saw positive inflows of net new money throughout 2002. Despite difficult market conditions, accentuated by Italy's tax amnesty in the first half of the year, wealthy clients invested CHF 35.1 billion in new funds with UBS. The European wealth management initiative achieved an annual inflow rate of 48% over the year.
UBS Warburg's expansion efforts in the US are showing strong signs of success, as the recent hires in investment banking give UBS critical access to important client relationships and potential deals. UBS Warburg increased its global investment banking market share to 5.0% at the end of 2002 from 4.5% a year ago.
Performance against Group financial targets
(all pre-goodwill and adjusted for significant financial events1):
The Group's return on equity for 2002 was 13.9%, down from 14.8% a year ago and slightly below UBS's target range of 15-20%. Continued share buybacks reducing the level of equity partially offset the 12% drop in earnings.
Basic earnings per share in 2002 were CHF 4.57, 8% lower than in 2001, and again well-supported by the share repurchase program.
The cost/income ratio for the year rose to 79.5% from 77.3% a year earlier.
Fourth quarter results
In the fourth quarter, UBS reported a net loss of CHF 101 million, down from a net profit of CHF 1,106 million a year earlier. Pre-goodwill and adjusted for significant financial events1, net profit was CHF 1,075 million, a 25% decline from the CHF 1,436 million achieved in the same quarter a year earlier. Poor equity trading conditions, continued writedowns in the private equity portfolio, and a drop in recurring fees reflecting the market-driven decrease in asset levels all weighed on operating income.
With a net recovery of CHF 11 million, UBS posted another exceptionally positive credit risk result (against a credit loss expense of CHF 115 million in fourth quarter 2001), reflecting minimal requirements for new provisions.
Operating expenses for the quarter were CHF 7,776 million. Besides the brand writedown, UBS recorded a provision of CHF 111 million (USD 80 million) related to the US equity research settlement - booked in the Business Groups UBS Warburg (CHF 90 million) and UBS PaineWebber (CHF 21 million) - and a CHF 72 million charge for the downsizing and relocation of UBS Warburg Energy. These charges were offset by lower personnel costs, due to decreased variable compensation.
Net new money invested by clients of UBS's wealth management businesses was CHF 9.4 billion in the quarter, down by CHF 3.3 billion from the third quarter. UBS PaineWebber achieved a very strong result with net new money of CHF 6.3 billion, nearly doubling the inflow of CHF 3.4 billion achieved in third quarter 2002. Excellent inflows of CHF 2.0 billion were again recorded in the European wealth management business, in particular in Germany and the UK.
Dividend of CHF 2.00 per share and new buyback program
For the 2002 financial year, the Board of Directors will recommend a dividend of CHF 2.00 per share to the Annual General Meeting on 16 April 2003. This level is in line with the payments made in the last two years and confirms UBS's commitment towards making stable distributions to shareholders.
UBS's ongoing share buyback programs are another important tool used to return retained earnings to shareholders. Under the 2002 buyback programs, UBS had bought back a total of 74,035,080 shares as of 31 December 2002 for a total value of CHF 5.4 billion. The second of the two 2002 buyback programs will remain open until 5 March 2003. All these shares will be cancelled by the Annual General Meeting in April 2003 and cannot be reissued.
As 2003 begins, the environment continues to be challenging. Uncertainty over economic developments, market direction and rising geopolitical concerns are affecting investor sentiment and therefore transaction levels, and are holding back a significant recovery in corporate activity. Therefore, UBS does not expect to see an immediate pick up in its financial performance, as depressed asset levels, low investor activity and possible deterioration of the credit environment weigh on revenue. Any recovery in the latter part of this year remains simply unpredictable.
Full Media Release:
Further information on UBS's quarterly results is available in the Investors & Analysts section.
4Q2002 Report (pdf and interactive version)
4Q2002 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 18 February 2003:
0300 US EDT
Webcast playback will be available from 1400 CET on 18 February, with a bookmarked version at 1800 CET the same day.
Zurich / Basel, 18 February 2003