Business Context and Reporting Period
This Form 6-K filing contains the transcript of UBS Group AG's Second Quarter 2021 results presentation and Q&A session, dated July 21, 2021. The reporting period covers the three months ended June 30, 2021. UBS reported strong momentum across all business divisions and regions, driven by a constructive economic backdrop, robust client activity, and the execution of strategic initiatives focused on growth and efficiency.
Key Financial Metrics
- Net Profit: $2.0 billion (up 63% year-over-year).
- Pre-Tax Profit (PBT): $2.6 billion (up 64% year-over-year).
- Return on CET1 Capital: 19.3%.
- Operating Income: Up 21% year-over-year.
- Cost-to-Income Ratio: Improved by 4 percentage points to just below 72%.
- CET1 Capital Generation: $2.5 billion accretion in the quarter.
- CET1 Capital Ratio: Increased to 14.5%.
- CET1 Leverage Ratio: Increased to 4.09%.
- Share Buybacks: $1.4 billion year-to-date; $300 million in Q2.
- Net Credit Losses: Net release of $80 million.
Material Changes vs. Prior Period
UBS delivered its best second-quarter pre-tax profit on record in Global Wealth Management (GWM), with PBT rising 47% to $1.3 billion. Asset Management PBT increased 62% to $255 million, while the Investment Bank (IB) PBT grew 9% to $668 million. Personal & Corporate Banking (P&C) PBT doubled to 456 million Swiss francs.
Key drivers for the increase included:
- Wealth Management: Net new fee-generating assets of $25 billion (annualized growth rate of 8%) and net new loans of $7 billion. Transaction-based income rose 16%.
- Investment Bank: Advisory revenues reached a record high, and Capital Markets revenues were the highest since 2014. However, Global Markets revenues declined 14% due to normalized conditions in FX, rates, and credit compared to the volatile prior year.
- Efficiency: Operating leverage of 11 percentage points contributed significantly to PBT growth.
Guidance, Outlook, and Risks
Outlook and Guidance: Management expects momentum to continue into the third quarter, though client activity may be slightly lower than the prior year due to seasonality. Net interest income in GWM is expected to increase slightly sequentially. Full-year 2021 cost guidance remains unchanged, with operating expenses (excluding variable comp, currency, restructuring, and litigation) expected to rise around 1%.
Capital Return: UBS intends to resume share repurchases in Q3 with a target of $600 million. The firm aims to return all excess capital above a 13% CET1 guidance level.
Strategic Initiatives: Continued focus on the "One UBS" ecosystem, including private markets (facilitated over $18 billion in investments in H1), sustainability investing (managed SI mandate attracted $8 billion in H1), and the "My Way" digital platform (invested assets tripled to over $4 billion).
Risks and Contingencies:
- Regulatory Environment: Ongoing discussions in Switzerland regarding capital requirements and bonus caps for systemically important banks, though no active enforcement measures announced.
- Archegos Review: UBS has completed its internal review and shared findings with regulators; no new regulatory enforcement measures or risk limit changes have been announced.
- Market Risks: Inflation concerns, vaccine distribution uncertainties, and potential delays in economic growth due to virus variants.
- Credit Risk: Management remains comfortable with credit quality, noting front-book risk costs are lower than the back book.
Investor Verification Checklist
- Verify the sustainability of the 19.3% return on CET1 capital given the strong market backdrop.
- Monitor the pace of share buybacks relative to the 13% CET1 capital guidance target.
- Assess the impact of lower-margin inflows (e.g., SMAs, sustainable mandates) on long-term fee margins in Wealth Management.
- Track regulatory developments in Switzerland regarding capital requirements and remuneration caps.
- Confirm the trajectory of Investment Bank capital usage to ensure it remains within the one-third capital allocation cap.