UBS Group AG current report, Q4 FY2019

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UBS Group AG: Q4 2019 Results Summary

Business Context and Reporting Period

This Form 6-K filing, dated January 22, 2020, presents the Fourth Quarter and Full Year 2019 results for UBS Group AG and UBS AG. The reporting period covers the fiscal year ended December 31, 2019. The filing includes presentation materials and speaker notes from the Group CEO, Sergio Ermotti, and Group CFO, Kirt Gardner, detailing financial performance, strategic priorities for 2020-2022, and an analyst Q&A session.

Key Financial Metrics

  • Net Profit: Full-year 2019 net profit reached $4.3 billion. Q4 2019 net profit was $722 million.
  • Pre-Tax Profit (PBT): Q4 2019 adjusted PBT was $1.2 billion, the best fourth quarter since 2010. Full-year adjusted PBT was not explicitly stated as a single aggregate figure in the text, but Q4 represented a significant improvement.
  • Return on Capital: Full-year 2019 Return on CET1 capital was 12.4%.
  • Assets Under Management: Total assets managed exceeded $3.6 trillion, an increase of nearly $1 trillion over four years. Global Wealth Management (GWM) invested assets reached $2.6 trillion.
  • Capital Ratios: CET1 ratio ended the year at 13.7%; Leverage ratio was 3.9%.
  • Costs: Operating expenses were reduced by 4% in 2019, with total savings of $900 million for the year and $2.7 billion since 2015.
  • Dividends: Proposed dividend of $0.73 per share for 2019, a 6% increase year-on-year.

Material Changes vs. Prior Period

  • Profitability: Q4 2019 PBT more than doubled compared to Q4 2018. Excluding litigation, PBT was up 30% year-over-year.
  • Revenue: Q4 revenues increased by 4% year-over-year. Asset Management PBT rose nearly 50% to $187 million in Q4.
  • Expenses: Q4 expenses decreased by 7% year-over-year, driven by lower litigation provisions compared to Q4 2018.
  • Investment Bank (IB): IB PBT rebounded to approximately $250 million (excluding litigation) in Q4, recovering from a weak Q4 2018. Revenues grew 11%.
  • Global Wealth Management (GWM): Q4 PBT was up 3% excluding litigation. Net new money was $5 billion in outflows globally, though APAC and Switzerland reported inflows. Americas outflows were driven by two large, low-margin clients.

Guidance, Outlook, and Risks

  • 2020-2022 Targets: UBS targets a Return on CET1 capital of 12-15% and a cost/income ratio of 75-78%.
  • GWM Growth: Targeting 10-15% annual PBT growth in Global Wealth Management for 2020-2022.
  • Investment Bank Returns: Expecting IB returns of around 11% in 2020, with further improvement in 2021 and 2022.
  • Capital Returns: Plans to buy back approximately $450 million of shares in the first half of 2020. Further buybacks in the second half will depend on business outlook and the outcome of the French cross-border tax matter.
  • Strategic Initiatives: Focus on "one firm" collaboration, digital transformation (spending $3.4 billion on technology in 2019), and partnerships (e.g., Clearstream, Broadridge, Sumi Trust, Banco do Brasil).
  • Risks and Contingencies:
    • French Tax Matter: An initial verdict was disappointing; UBS has appealed and is preparing for a trial scheduled for late Q2 2020.
    • Regulatory Changes: Anticipated increase in credit risk RWA of roughly $3 billion in Q1 2020 due to the standardized approach for counterparty credit risk. Basel III finalization impact remains uncertain but is expected to be lower than previously guided due to implementation delays.
    • Market Conditions: Persistent low/negative interest rates in Europe and Switzerland, and muted market volatility impacting trading revenues.
  • Reporting Change: Starting Q1 2020, UBS will no longer disclose "adjusted" results, moving to reported results while highlighting non-representative items.

Key Facts for Investor Verification

  • Verify the timeline and potential financial impact of the French cross-border tax appeal trial scheduled for late Q2 2020.
  • Monitor the execution of the $1 billion in cost savings planned for 2020 to fund $1 billion in strategic investments.
  • Track the progress of the Global Wealth Management loan growth target of $20 billion annually from 2020 to 2022.
  • Assess the impact of the new reporting standard (reported vs. adjusted results) on future financial comparisons.
  • Review the outcome of the Clearstream partnership and its effect on the B2B fund distribution platform scale.