UBS Group AG: Third Quarter 2022 Filing Summary
Business Context and Reporting Period
This Form 6-K filing covers UBS Group AG's Third Quarter 2022 results, reported for the period ended September 30, 2022. The reporting period was characterized by high inflation, aggressive central bank interest rate hikes, and geopolitical instability due to the war in Ukraine. UBS reported a reduction in direct country risk exposure to Russia to USD 0.2 billion and confirmed no new business is being conducted in Russia. The company also completed the sale of its domestic wealth management business in Spain and its Swiss Financial Advisers subsidiary, and terminated its merger agreement with Wealthfront.
Key Financial Metrics
| Metric (USD) | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 |
|---|---|---|---|---|
| Total Revenues | 8,236 | 9,115 | 26,534 | 26,689 |
| Operating Profit Before Tax | 2,323 | 2,865 | 7,667 | 7,755 |
| Net Profit Attributable to Shareholders | 1,733 | 2,279 | 5,977 | 6,109 |
| Diluted EPS | 0.52 | 0.63 | 1.74 | 1.68 |
| Return on Equity (ROE) | 12.3% | 15.3% | 13.7% | 13.8% |
| Cost/Income Ratio | 71.8% | 68.7% | 71.0% | 71.4% |
| CET1 Capital Ratio | 14.4% | 14.9% | 14.4% | 14.9% |
| Liquidity Coverage Ratio (LCR) | 162.7% | 157.3% | 162.7% | 157.3% |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased by 10% year-over-year (USD 879 million) in Q3 2022, driven primarily by a 20% drop in net fee and commission income due to negative market performance and lower client activity. This was partially offset by a 216% increase in "Other income," largely due to gains from the sale of the Spanish wealth management business (USD 133 million) and the Swiss Financial Advisers subsidiary (USD 86 million).
- Expense Reduction: Operating expenses decreased by 6% (USD 348 million) year-over-year, primarily due to lower personnel expenses (USD 382 million decrease) resulting from reduced variable compensation and financial advisor fees.
- Profitability: Operating profit before tax fell 19% to USD 2.3 billion. Net profit attributable to shareholders declined 24% to USD 1.7 billion.
- Capital and Liquidity: The CET1 capital ratio increased to 14.4% from 14.2% in the prior quarter, driven by a decrease in risk-weighted assets (RWA). The LCR increased to 162.7%, remaining well above regulatory requirements.
Guidance, Outlook, and Risks
- Outlook: Management expects persistently high inflation and interest rate hikes to continue affecting economic growth and market volatility. While lower asset valuations negatively impact recurring fee income, higher interest rates are expected to positively affect net interest income. Client sentiment remains muted, which may impact net new assets in the fourth quarter.
- Capital Returns: The Board intends to propose an ordinary dividend of USD 0.55 per share (a 10% increase from the prior year). Share repurchases for 2022 are expected to total approximately USD 5.5 billion.
- Risks: Key risks include the escalation of the war in Ukraine, potential second-order impacts on clients and counterparties, increased cyberattack threats, and the impact of rising interest rates on the economic value of equity. The company notes that litigation and regulatory expenses are expected to remain elevated.
Investor Verification Checklist
- Fee Income Sustainability: Verify the extent to which the decline in net fee and commission income is driven by temporary market volatility versus structural changes in client activity.
- One-Time Gains: Assess the impact of the USD 219 million in gains from business disposals (Spain and Swiss Financial Advisers) on the "Other income" line and future comparability.
- Expense Trajectory: Monitor the trend in personnel expenses to determine if the reduction in variable compensation is sustainable or if it signals a broader slowdown in revenue generation.
- Capital Adequacy: Confirm that the CET1 capital ratio remains comfortably above the Swiss systemically relevant bank (SRB) requirements despite potential increases in RWA from model updates.
- Geopolitical Exposure: Review the specific details of the remaining USD 0.2 billion exposure to Russia and the potential for settlement risks or collateral realization issues.