Business Context and Reporting Period
This Form 6-K filing by UBS Group AG and UBS AG reports the Third Quarter 2022 results, released on October 25, 2022. The reporting period covers the three months ended September 30, 2022. The results were presented against a backdrop of significant macroeconomic and geopolitical uncertainty, including inflation, the war in Ukraine, and rapid central bank interest rate hikes.
Key Financial Metrics
- Net Profit: USD 1.7 billion.
- Return on CET1 Capital (RoCET1): 15.5%.
- Cost/Income Ratio: 71.8%.
- CET1 Capital Ratio: 14.4% (well above target levels).
- CET1 Leverage Ratio: 4.51%.
- Total Revenue: Down 10% year-over-year (underlying revenue ex-FX down 7%).
- Operating Expenses: Down 6% year-over-year (down 1% ex-litigation and FX).
- Net Interest Income (NII): Up 14% year-over-year (USD 223 million increase).
- Net Credit Loss Release: USD 3 million.
- Capital Returns: Dividend accrual increased to 55 cents (10% YoY increase); share buybacks totaled USD 4.6 billion year-to-date, with a full-year target of approximately USD 5.5 billion.
Material Changes vs. Prior Period
- Revenue Mix: Global Markets revenue was broadly flat year-over-year, driven by a 64% increase in Fixed Income, Rates, and Commodities (FRC) revenues offset by declines in equities. Global Banking revenue fell 58% due to subdued M&A and capital markets activity.
- Asset Flows: Global Wealth Management (GWM) recorded USD 17 billion in net new fee-generating assets. Asset Management saw USD 18 billion in net new money, with USD 16 billion in money market funds.
- Regional Performance:
- US: NII up 38% YoY; strong advisor recruiting and USD 4 billion in net new fee-generating assets.
- Switzerland: Solid growth with USD 2 billion in net new loans and deposits.
- EMEA: USD 6 billion in net new fee-generating assets; completed sale of Spanish business.
- Asia Pacific: USD 7 billion in net new fee-generating assets; deleveraging in Lombard loans observed.
- Costs: Inflationary pressures on salaries, travel, and technology were partially offset by lower variable compensation and cost discipline measures.
Guidance, Outlook, and Risks
- Full-Year Targets: Management remains on track to meet full-year RoCET1 and cost/income ratio targets on both reported and underlying bases.
- 2023 NII Outlook: Expected to be higher than the fourth quarter of 2022 annualized, driven by exposure to Swiss franc and Euro rates, though USD NII is expected to peak in Q4 2022 or early 2023.
- Cost Guidance: Full-year expenses ex-litigation and FX are expected to be up 1% year-over-year. The company is on track to deliver an incremental USD 400 million in cost savings in 2022 as part of a USD 1 billion program by 2023.
- Capital Returns: The company plans to maintain a progressive dividend and material share repurchases in 2023, managing capital around a 13% CET1 target.
- Risks and Contingencies:
- Geopolitical tensions (Russia/Ukraine) and potential for wider commodity shortages.
- Macroeconomic slowdowns and recession risks due to aggressive interest rate hikes.
- Regulatory changes, including new Swiss liquidity requirements effective July 2022 (management does not expect a material P&L impact).
- Operational risks including cyberattacks and sanctions compliance.
Investor Verification Checklist
- Verify the sustainability of the 14% NII growth given the expected peak in USD rates and potential deposit mix shifts in 2023.
- Confirm the composition of the USD 18 billion in Asset Management inflows, specifically the proportion held in lower-margin money market funds versus fee-generating mandates.
- Monitor the execution of the USD 1 billion cost-saving program and the impact of inflation on the 70-73% cost/income ratio target.
- Assess the trajectory of Global Banking revenues as M&A and capital markets activity remains subdued.
- Review the impact of deleveraging in Asia Pacific on the overall loan book and credit quality metrics.