Business Context and Reporting Period
Company: UBS Group AG and UBS AG
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Second Quarter 2015 (ended June 30, 2015)
Date Filed: July 27, 2015
Context: The filing presents Q2 2015 results, highlighting a strategic transformation, successful launch of UBS Switzerland AG, and progress in reducing risk-weighted assets (RWA) and leverage ratio denominator (LRD). The bank reported strong performance across all business divisions despite macroeconomic uncertainty.
Key Financial Metrics
| Metric | Q2 2015 | Q2 2014 | 1H 2015 (YTD) |
|---|---|---|---|
| Net Profit (Attributable to Shareholders) | CHF 1,209 million | CHF 792 million | CHF 3,200 million (approx.) |
| Diluted EPS | CHF 0.32 | CHF 0.21 | CHF 0.85 (approx.) |
| Profit Before Tax (Reported) | CHF 1,759 million | CHF 1,218 million | CHF 3,967 million (approx.) |
| Adjusted Profit Before Tax | CHF 1,635 million | CHF 1,191 million | CHF 3,903 million (approx.) |
| Return on Tangible Equity (Adjusted) | 9.6% | 7.2% | 12.0% (Annualized 1H) |
| Basel III CET1 Ratio (Fully Applied) | 14.4% | 13.5% | N/A |
| Swiss SRB Leverage Ratio (Fully Applied) | 4.7% | 4.2% | N/A |
| Operating Income | CHF 7,818 million | CHF 7,147 million | N/A |
| Operating Expenses | CHF 6,059 million | CHF 5,929 million | N/A |
Divisional Performance (Q2 2015 Profit Before Tax)
- Wealth Management: CHF 769 million (Highest Q2 since 2009)
- Wealth Management Americas: USD 231 million (Record recurring fee income)
- Retail & Corporate: CHF 414 million (Highest Q2 since 2010)
- Global Asset Management: CHF 134 million
- Investment Bank: CHF 617 million (34% annualized return on attributed equity)
- Corporate Center: Negative CHF 514 million
Material Changes vs. Prior Period
- Profit Growth: 1H 2015 net profit increased 73% year-over-year to CHF 3.2 billion. Q2 adjusted profit before tax rose 37% year-over-year.
- Capital Ratios: Fully applied Basel III CET1 ratio increased 70 basis points to 14.4%. Swiss SRB leverage ratio increased 10 basis points to 4.7%.
- Balance Sheet Optimization: Significant reduction of CHF 14 billion in Non-core and Legacy Portfolio Leverage Ratio Denominator (LRD), bringing total Swiss SRB LRD down to CHF 944 billion.
- Risk-Weighted Assets (RWA): Fully applied Basel III RWA decreased by CHF 7 billion to CHF 210 billion, driven by a CHF 4 billion reduction in supplemental operational risk RWA.
- Wealth Management: Adjusted Net New Money (NNM) was CHF 8.4 billion, with mandate penetration rising to 26.3%.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Capital Returns: UBS targets to pay out at least 50% of net profits, subject to maintaining a fully applied Basel III CET1 ratio of at least 13% and a post-stress ratio of at least 10%. A supplementary capital return of CHF 0.25 per share is planned for Q3 2015.
- Deferred Tax Assets (DTA): Management expects a potential upward revaluation of US DTAs of approximately CHF 1.5 billion in Q3 2015, contingent on extending the forecast period for recognition to seven years.
- Cost Reduction: The bank remains committed to a CHF 2.1 billion net cost reduction target. As of June 2015, CHF 0.9 billion in annualized net cost reductions had been achieved in the Corporate Center.
- Strategic Milestones: Successful launch of UBS Switzerland AG. Plans to issue Additional Tier 1 (AT1) capital and inaugural TLAC-eligible debt in Q3 2015. Establishment of a US Intermediate Holding Company expected by July 2016.
Risks and Contingencies
- Regulatory Changes: Uncertainty regarding FINMA approval of RWA reductions and evolving capital/liquidity requirements in Switzerland, the US, and the UK.
- Market Conditions: Macroeconomic uncertainty, currency fluctuations (specifically the strong Swiss Franc impacting the domestic economy), and market volatility affecting trading revenues.
- Legal and Litigation: Ongoing provisions for litigation and regulatory matters, particularly in Wealth Management Americas.
- Operational Risks: Challenges in executing strategic plans, technology updates, and managing the Non-core and Legacy Portfolio unwind.
Key Facts for Investor Verification
- Capital Strength: Verify the 14.4% fully applied Basel III CET1 ratio and the 4.7% Swiss SRB leverage ratio, which are among the highest for large global banks.
- Deferred Tax Asset Revaluation: Monitor the Q3 2015 financials for the expected CHF 1.5 billion upward revaluation of US deferred tax assets and its impact on net profit.
- Cost Reduction Progress: Track the achievement of the CHF 2.1 billion net cost reduction target against the current CHF 0.9 billion achieved in the Corporate Center.
- Non-Core Portfolio Unwind: Assess the continued reduction of the Non-core and Legacy Portfolio LRD (currently CHF 70 billion) and the associated cost of exit.
- Capital Return Execution: Confirm the payment of the supplementary capital return of CHF 0.25 per share in Q3 2015 and the issuance of AT1 and TLAC-eligible debt.