UBS Group AG current report, Q1 FY2022

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UBS Group AG: First Quarter 2022 Results Summary

Business Context and Reporting Period

This Form 6-K reports the First Quarter 2022 results for UBS Group AG and UBS AG, covering the period ended March 31, 2022. The quarter was characterized by significant geopolitical volatility due to Russia's invasion of Ukraine, rising inflation, and tightening monetary policy expectations. Management emphasized strategic execution, client service, and proactive risk management, particularly regarding Russian exposures.

Key Financial Metrics

  • Net Profit: USD 2.1 billion (up 17% year-over-year), the best Q1 result since 2007.
  • Pre-Tax Profit (PBT): USD 2.7 billion (up 19% year-over-year).
  • Operating Income: Up 8% year-over-year, marking the 7th consecutive quarter of growth.
  • Return on CET1 Capital: 19.0%.
  • Cost-to-Income Ratio: 70.7% (improved by over 3 percentage points year-over-year).
  • Net Credit Loss Expenses: USD 18 million (with a management overlay of USD 204 million).
  • Capital Ratios: CET1 capital ratio of 14.3%; CET1 leverage ratio of 4.16%.
  • Share Repurchases: USD 1.7 billion in Q1; total repurchases of USD 2.1 billion as of April 22, 2022.

Material Changes vs. Prior Period

  • Global Wealth Management (GWM): PBT decreased 7% to USD 1.3 billion. While operating income rose 1%, higher operating expenses (driven by US financial advisor compensation and litigation provisions) offset top-line growth. Net new fee-generating assets were USD 19 billion (5% annualized growth).
  • Personal & Corporate Banking (P&C): PBT increased 10% to CHF 395 million. Transaction-based income hit a record level, and recurring net fee income rose 15%.
  • Asset Management: PBT decreased 23% from a strong Q1 2021. Net management fees grew 3%, but performance fees declined. Net new money (ex-money markets) was USD 14 billion.
  • Investment Bank (IB): PBT increased to USD 929 million. Global Markets revenues reached a record high (up 59% year-over-year), driven by equity derivatives, rates, and FX. Global Banking revenues fell 30% due to subdued capital markets activity.
  • Risk-Weighted Assets (RWA): Increased by USD 10 billion sequentially, driven by higher client activity, market volatility, and a USD 2.1 billion increase in operational risk RWA related to a French cross-border matter.

Guidance, Outlook, and Risks

  • Net Interest Income (NII): Management anticipates an increase of approximately USD 1 billion year-over-year for the remainder of 2022, with the majority materializing in the second half. Q2 NII is expected to grow roughly 15% sequentially.
  • Cost Guidance: Expenses (excluding variable compensation, FX, and litigation) are expected to increase around 2% for the full year. The cost-to-income ratio is guided to remain between 70% and 73%.
  • Capital Return: UBS remains on track to repurchase around USD 5 billion of shares in 2022. The payout ratio for Q1 was approximately 100% of net profit (including dividends and buybacks).
  • Russia Exposure: UBS significantly reduced exposures to Russia early in the quarter. The firmwide P&L impact for Q1 was approximately USD 100 million, primarily related to derivative settlements and provisions. Invested assets related to Russian clients represent 0.7% of total invested assets.
  • Risks: Key risks include ongoing geopolitical tensions, market volatility, inflationary pressure on costs, and potential further regulatory impacts on operational risk RWA (estimated additional USD 8 billion for the remainder of 2022).

Investor Verification Checklist

  • Verify the sustainability of the USD 1 billion NII uplift given potential deposit outflows and terming-out behaviors as rates rise.
  • Monitor the trajectory of operational risk RWA increases related to the French cross-border matter and other regulatory model updates.
  • Assess the impact of continued deleveraging in the Asia-Pacific region on GWM lending volumes and margins.
  • Confirm the stability of the cost-to-income ratio amidst global inflationary pressures, particularly in the US and Asia.
  • Review the composition of net new fee-generating assets to ensure the shift toward mandates and alternatives supports long-term recurring revenue.