Business Context and Reporting Period
This Form 6-K filing, dated February 28, 2020, presents the audited standalone financial statements for UBS AG for the year ended December 31, 2019. UBS AG is a regulated bank in Switzerland and a wholly-owned subsidiary of UBS Group AG. The entity operates globally across four business divisions: Global Wealth Management, Investment Bank, Group Treasury, and Corporate Center. The financial statements are prepared in accordance with Swiss GAAP (FINMA Circular 2015/1) and presented in both USD and CHF.
Key Financial Metrics
| Metric (USD Million) | 2019 | 2018 |
|---|---|---|
| Total Operating Income | 11,975 | 12,040 |
| Operating Profit | 3,889 | 2,501 |
| Net Profit | 3,848 | 3,333 |
| Total Assets | 478,946 | 480,238 |
| Total Liabilities | 427,242 | 429,130 |
| Total Equity | 51,705 | 51,107 |
| Common Equity Tier 1 (CET1) Capital | 49,521 | 49,411 |
| Risk-Weighted Assets (RWA) | 287,999 | 292,888 |
| Liquidity Coverage Ratio (LCR) | 137% | 139% |
Profitability and Margins
- Net Interest Income: Increased significantly to $695 million from $254 million in 2018.
- Net Fee and Commission Income: Rose to $2,643 million from $1,799 million.
- Net Trading Income: Declined to $3,337 million from $4,443 million, driven by lower performance in the Investment Bank.
- Operating Profit Margin: Improved to approximately 32.5% ($3,889m / $11,975m) compared to 20.8% in 2018.
- Effective Tax Rate: The average tax rate was 5.0% in 2019, compared to a negative 27.0% in 2018 (which included a one-time tax benefit).
Material Changes vs. Prior Period
- Profit Growth: Net profit increased by 15.5% ($515 million) year-over-year, primarily due to a reduction in operating expenses and lower impairment charges.
- Expense Reduction: Total operating expenses decreased by 15.2% to $8,086 million. This was driven by a $1.45 billion reduction in "Impairment of investments in subsidiaries" (from $760m to $206m) and lower general and administrative expenses.
- Trading Income Decline: Net trading income fell by $1.1 billion, largely attributed to the Investment Bank's Investor Client Services and Corporate Client Solutions.
- Balance Sheet Shifts: Trading portfolio assets increased by $21.2 billion to $116.8 billion, while bonds issued decreased by $28.7 billion to $55.0 billion.
- Regulatory Capital: CET1 capital increased slightly by $110 million, while Risk-Weighted Assets decreased by $4.9 billion, improving the CET1 ratio to 17.19%.
Guidance, Outlook, and Risks
Management Commentary and Dividends
The Board of Directors proposed an ordinary dividend distribution of $3,848 million (total profit available for appropriation). The dividend is declared in USD but subject to a CHF cap of $7,696 million. If the CHF equivalent exceeds the cap, the USD per share amount will be reduced pro-rata.
Organizational Changes
- Asset Management Transfer: Effective April 1, 2019, the Asset Management business in Switzerland was transferred to UBS Asset Management Switzerland AG, resulting in a $189 billion decrease in invested assets reported by UBS AG.
- UK Merger: The merger of UBS Limited into UBS Europe SE was concluded in March 2019.
Risks and Contingencies
- Contingent Liabilities: Net contingent liabilities stood at $11.6 billion, including $5.9 billion in guarantees to third parties related to subsidiaries.
- Litigation Provisions: Provisions for litigation, regulatory, and similar matters totaled $867 million as of year-end.
- Accounting Changes: UBS AG will adopt an expected credit loss (ECL) approach under Swiss GAAP starting January 1, 2021, with a transition period until 2025.
Investor Verification Checklist
- Dividend Cap Mechanics: Verify the exchange rate on the AGM date to confirm if the USD dividend will be reduced to meet the CHF 7.696 billion cap.
- Trading Income Volatility: Assess the sustainability of the $1.1 billion decline in net trading income and its impact on future earnings.
- Impairment Reversals: Review the $166 million in reversals of impairments recorded as extraordinary income to understand the quality of earnings.
- Regulatory Capital Adequacy: Confirm that the CET1 ratio of 17.19% comfortably exceeds the Swiss SRB going concern requirement of 9.71% (including buffers).
- Related Party Exposure: Note that $47.6 billion in funding received from UBS Group AG is eligible as total loss-absorbing capacity, indicating high intercompany dependency.