Business context and reporting period
UBS Group AG’s Form 20-F is an audited annual report for the fiscal year ended December 31, 2020, prepared under IFRS as issued by the IASB. It covers UBS Group AG and consolidated subsidiaries and includes separate consolidated information for UBS AG. The filing discusses FY 2020, not standalone fourth-quarter results; a clear set of Q4-only financial values is not provided in the supplied text.
UBS operates Global Wealth Management, Personal & Corporate Banking, Asset Management and the Investment Bank, supported by Group Functions. The year was shaped by COVID-19, volatile markets, low or negative interest rates and government support programs.
Key financial metrics
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Operating income | USD 32.390 billion | USD 28.889 billion |
| Operating expenses | USD 24.235 billion | USD 23.312 billion |
| Profit before tax | USD 8.155 billion | USD 5.577 billion |
| Net profit attributable to shareholders | USD 6.557 billion | USD 4.304 billion |
| Diluted earnings per share | USD 1.77 | USD 1.14 |
| Cost/income ratio | 73.3% | 80.5% |
| Return on CET1 capital | 17.4% | 12.4% |
| Return on tangible equity | 12.8% | 9.0% |
| Credit loss expense | USD 694 million | USD 78 million |
| Total assets at year-end | USD 1.126 trillion | USD 972.194 billion |
Operating cash flow was USD 36.958 billion, investing cash flow was negative USD 6.785 billion and financing cash flow was positive USD 12.432 billion. Cash and cash equivalents ended the year at USD 173.531 billion, up from USD 119.873 billion.
At year-end, customer deposits were USD 524.6 billion, up 17%; long-term debt issued was USD 153.8 billion, down 1%; and short-term borrowings were USD 57.7 billion, up 103%. Customer deposits equaled 138% of outstanding loans. The Q4 average liquidity coverage ratio was 152%, versus 134% in Q4 2019; estimated pro forma net stable funding ratio was 119%, versus 111%.
CET1 capital was USD 39.9 billion and the CET1 ratio was 13.8%, compared with 13.7% a year earlier. The CET1 leverage ratio was 3.85%, versus 3.90%; total loss-absorbing capacity ratio was 35.2%, versus 34.6%. Risk-weighted assets rose to USD 289.1 billion from USD 259.2 billion.
Material changes versus the prior comparable period
- Operating income rose 12% and profit before tax rose 46%; shareholder net profit increased 52%. Higher net interest income, fees and other income drove the improvement, partly offset by higher operating expenses and credit losses.
- Net interest income increased 30% to USD 5.862 billion, while net fee and commission income increased 10% to USD 19.186 billion. Net credit loss expense rose sharply to USD 694 million amid COVID-related economic uncertainty.
- Operating expenses increased 4%, primarily from higher personnel expenses and depreciation, partly offset by lower general and administrative costs.
- Division profit before tax: Global Wealth Management USD 4.019 billion, up 18%; Personal & Corporate Banking USD 1.259 billion, down 13% in USD terms; Asset Management USD 1.455 billion, up 174% including the Fondcenter gain; and Investment Bank USD 2.482 billion, up 217%.
- Invested assets increased 16% to USD 4.187 trillion. Global Wealth Management reported USD 43.3 billion net new money and Asset Management USD 80.1 billion.
Outlook, risks, contingencies and unusual items
- Targets and capital guidance: UBS stated targets of 12–15% return on CET1 capital, positive operating leverage, a 75–78% cost/income ratio, and 10–15% annual Global Wealth Management profit-before-tax growth over the cycle. Capital guidance was approximately 13% CET1 ratio and above 3.7% CET1 leverage ratio.
- Management outlook: Management expected economic recovery and continued policy support in 2021, while noting uncertainty around the pandemic, vaccination, interest rates and credit quality. It expected elevated credit loss expenses to persist while containment measures continued, though below first-half 2020 levels. UBS expected a 2021 tax rate around 25%, excluding potential tax-rate changes and future deferred-tax-asset remeasurement effects.
- Capital returns: The Board intended to propose a FY 2020 dividend of USD 0.37 per share for shareholder approval. UBS completed its prior three-year CHF 2 billion repurchase program on February 2, 2021, and launched a new three-year program of up to CHF 4 billion, expecting to execute up to USD 1 billion by the end of Q1 2021.
- Unusual income and expenses: Results included a USD 631 million gain on selling a 51.2% stake in Fondcenter AG and a USD 215 million gain on selling Bloomberg Commodity Index-related intellectual property. A fourth-quarter auction-rate-securities valuation gain of USD 134 million followed earlier-year losses; the full-year portfolio recorded a net valuation loss of USD 9 million. The modification of certain deferred-compensation awards caused approximately USD 280 million of FY expense.
- French cross-border matter: UBS disputed the first-instance ruling, which imposed EUR 3.7 billion in fines and EUR 800 million in civil damages. The appeal was scheduled for March 8–24, 2021. UBS maintained a EUR 450 million provision (USD 549 million at year-end) and cautioned that the ultimate amount could exceed the provision.
- Other risks and regulatory matters: Principal disclosed risks include COVID-19-related credit, market and operational effects; low/negative rates; litigation and regulatory exposure; cyber, fraud and financial-crime risks; LIBOR transition; capital and liquidity regulation; and constraints on transfers from regulated subsidiaries. The report states aggregate possible future losses from litigation and similar matters that are more than remote substantially exceed current provisions, but a total estimate is not practicable.
- Post-report adjustment: Compared with the unaudited Q4 report published January 26, 2021, subsequent adjustments increased litigation, regulatory and similar provisions by USD 72 million, reducing FY 2020 pretax profit and shareholder net profit by USD 72 million each and basic and diluted EPS by USD 0.02 each.
- Other notable items: UBS sold a majority stake in Fondcenter and established a Banco do Brasil investment-banking partnership. It signed an agreement to sell its Austrian domestic wealth-management business, expected to close in Q3 2021, with an anticipated pretax gain of about USD 0.1 billion.
Important facts for investors to verify
- Confirm audited FY 2020 results against the January 2021 unaudited Q4 report, particularly the USD 72 million post-report litigation provision adjustment.
- Review the composition, assumptions and potential range of litigation provisions, especially the French case and other contingent liabilities.
- Assess whether the elevated credit-loss expense and USD 117 million post-model ECL adjustment adequately reflect downside COVID-19 scenarios; monitor subsequent loan quality and credit losses.
- Verify capital and liquidity buffers against regulatory requirements, including the temporary FINMA leverage-ratio exemption, which expired January 1, 2021, and the NSFR’s July 2021 implementation.
- Evaluate the sustainability of earnings by separating recurring performance from the Fondcenter and intellectual-property gains, elevated market activity, and other valuation or compensation items.
- Confirm shareholder approval and execution of the proposed USD 0.37 dividend and new repurchase program, and monitor the effects on capital ratios and share count.