UBS Group AG — 2023 Form 20-F summary
Business context and reporting period. This is UBS Group AG’s annual report for the fiscal year ended December 31, 2023, filed March 28, 2024. It is an annual, not a standalone fourth-quarter report; the supplied filing text does not provide a clear standalone Q4 income statement. Consolidated statements use IFRS Accounting Standards and are presented in US dollars. UBS acquired Credit Suisse Group on June 12, 2023, so 2023 results include Credit Suisse from the acquisition date and are not directly comparable with 2022.
Financial results and position
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Total revenues | USD 40.8bn | USD 34.6bn |
| Operating profit before tax | USD 28.7bn | USD 9.6bn |
| Net profit attributable to shareholders | USD 27.8bn | USD 7.6bn |
| Diluted earnings per share | USD 8.45 | USD 2.25 |
| Operating expenses | USD 38.8bn | USD 24.9bn |
| Credit loss expense | USD 1.0bn | USD 29m |
| Cost/income ratio | 95.0%; underlying 87.2% | 72.1%; underlying 74.5% |
The reported profit includes USD 27.7bn of negative goodwill from the Credit Suisse acquisition. Excluding specified items, underlying profit before tax was USD 4.0bn, down 53% from USD 8.5bn; underlying return on CET1 capital was 4.2%, versus 14.6%. Reported return on CET1 capital was 42.3%, substantially reflecting negative goodwill. The reported effective tax rate was 3.0%, versus 20.2%, largely because the negative goodwill gain incurred no tax expense and UBS recognized deferred tax benefits.
Revenue increased 18%, but included USD 7.6bn of Credit Suisse revenue and USD 2.3bn of purchase-price-allocation accretion. Underlying 2023 revenue was USD 39.1bn, including USD 2.3bn of excluded purchase-accounting accretion and USD 508m of losses related to UBS’s investment in SIX Group. Operating expenses included USD 4.5bn of integration-related expenses.
Cash flow: Net cash from operating activities was USD 86.1bn; investing activities generated USD 103.2bn, primarily reflecting USD 108.5bn of cash acquired with Credit Suisse; financing activities used USD 58.3bn, including repayment of Swiss National Bank funding. Cash and cash equivalents ended the year at USD 340.3bn, up USD 145.0bn.
Balance sheet and liquidity: Total assets were USD 1.72tn and equity attributable to shareholders was USD 86.1bn. Customer deposits were USD 792.0bn; short-term borrowings were USD 109.5bn; debt issued designated at fair value and long-term debt issued at amortized cost totaled USD 327.6bn. The fourth-quarter average liquidity coverage ratio was 215.7%, and the year-end net stable funding ratio was 124.7%.
Capital: Year-end CET1 capital was USD 78.5bn, risk-weighted assets USD 546.5bn, CET1 ratio 14.4%, CET1 leverage ratio 4.6%, and total loss-absorbing capacity ratio 36.5%. These ratios reflect the acquisition and transitional purchase-accounting treatment.
Material changes versus the prior period
- The acquisition increased reported assets from USD 1.10tn to USD 1.72tn, invested assets from USD 4.0tn to USD 5.7tn, and full-time equivalents from 72,597 to 112,842. These comparisons include Credit Suisse only from June 2023.
- Reported revenue rose 18%, but operating expenses rose 56%, including consolidated Credit Suisse costs and integration costs; the reported cost/income ratio worsened to 95.0% from 72.1%.
- Credit loss expense rose to USD 1.0bn from USD 29m. UBS attributed much of the performing-loan allowance increase to initial recognition after the acquisition; credit-impaired exposure was USD 6.4bn.
- Following publication of the unaudited fourth-quarter report, UBS reduced provisional negative goodwill by USD 1.2bn to USD 27.7bn. This reduced 2023 pretax profit and shareholder net profit by USD 1.2bn, diluted EPS by USD 0.36 to USD 8.45, and the CET1 ratio from 14.5% to 14.4%.
Outlook, management commentary, risks and unusual items
Management said the acquisition accelerated UBS’s strategy and that integration is targeted to be substantially complete by the end of 2026. UBS reported about USD 4bn of exit-rate gross cost savings by year-end 2023 versus combined full-year 2022 costs. It aims for approximately USD 13bn of gross savings by end-2026, with around 45% expected by end-2024. Legal-entity mergers were expected in 2024, subject to regulatory approvals, to enable further cost, capital and funding synergies.
Management’s targets include underlying return on CET1 capital of around 15% and cost/income below 70% exiting 2026, and return on CET1 capital around 18% by end-2028. UBS aims for net new assets of around USD 100bn annually through 2025, increasing to around USD 200bn annually by 2028, and Global Wealth Management invested assets above USD 5tn by end-2028. UBS planned up to USD 1bn of 2024 share repurchases after completion of the UBS AG/Credit Suisse AG merger, proposed a USD 0.70 dividend per share for 2023, and indicated it was accruing for a mid-teen percentage dividend increase for 2024. These are forward-looking plans and depend on integration progress, approvals, capital and market conditions.
Key risks include integration execution, client and employee retention, realization of savings, litigation and regulatory matters inherited from Credit Suisse, macroeconomic and geopolitical volatility, interest-rate and credit risks, cyber and operational resilience, and changes in capital and liquidity regulation. UBS reported that Credit Suisse’s previously identified material weaknesses in internal control over financial reporting were not fully remediated at year-end. UBS judged its own internal controls effective but excluded Credit Suisse entities from its 2023 assessment under SEC acquisition guidance.
Other notable items include the write-off of CHF 15.8bn of Credit Suisse AT1 instruments ordered by FINMA in 2023, and the termination of Swiss government loss-protection and public liquidity backstop arrangements. Credit Suisse (Schweiz) AG still had CHF 38bn outstanding under the Emergency Liquidity Assistance facility at year-end; it repaid CHF 19bn in March 2024. A March 2024 agreement concerning the former Credit Suisse securitized-products portfolio and transfer of about USD 8bn of asset-based financing was expected to produce a UBS Group net gain of about USD 0.3bn in Q1 2024, while Credit Suisse AG expected a net loss of about USD 0.9bn.
Important facts for investors to verify
- Reconcile reported profit and EPS to the USD 27.7bn negative goodwill gain, the USD 1.2bn post-quarter measurement adjustment, and UBS’s underlying, non-IFRS measures.
- Review the acquisition accounting, including remaining provisional fair-value estimates, purchase-price-allocation accretion, and the difference between IFRS UBS reporting and Credit Suisse’s historical US GAAP reporting.
- Track integration milestones, legal-entity merger approvals, client retention, actual cost savings, and the path from 2023 underlying profitability to the 2026 targets.
- Confirm the timing and conditions for the proposed dividend, 2024 buybacks, and the expected 2024 dividend increase.
- Assess Credit Suisse control remediation, material litigation and contingent liabilities, including the SCFF matter and merger- and AT1-related claims.
- Monitor capital and liquidity ratios, Basel III implementation effects, regulatory requirements, and the repayment of remaining emergency liquidity assistance.