UBS Group AG current report, Q4 FY2017

Full document

Business Context and Reporting Period

This Form 6-K filing by UBS Group AG and UBS AG, dated January 22, 2018, presents corrected presentation materials and speaker notes regarding the Fourth Quarter and Full Year 2017 results. The filing outlines the bank's financial performance, strategic priorities for 2018-2020, and updates on capital returns and regulatory compliance.

Key Financial Metrics

  • Profit Before Tax (PBT): Full year 2017 reported PBT rose 32% to CHF 5.4 billion. Fourth quarter PBT increased over 20% year-over-year.
  • Net Profit: Excluding US tax law changes, full year net profit exceeded CHF 4 billion, up 24%.
  • Cost/Income Ratio: Group adjusted cost/income ratio improved by 3 percentage points to 78% for the full year.
  • Return on Equity: Adjusted return on tangible equity (excluding deferred tax assets) increased to 14%.
  • Capital Position: Total Loss Absorbing Capacity (TLAC) stands at almost CHF 80 billion. Fully applied CET1 ratios remain comfortably above 2020 requirements.
  • Dividend: Proposed ordinary dividend of CHF 0.65 per share, an 8% increase, to be paid from capital contribution reserves.
  • Share Buyback: Launch of a 3-year buyback program of up to CHF 2 billion, including up to CHF 550 million in 2018.

Material Changes vs. Prior Period

  • Revenue Growth: Global Wealth Management PBT rose 14% to CHF 4.1 billion; Personal and Corporate Banking PBT increased 8% to CHF 428 million (best Q4 since the crisis).
  • Asset Flows: Wealth and Asset Management businesses attracted over CHF 100 billion in net new money and added over CHF 360 billion to invested assets. Invested assets in Wealth Management reached CHF 2.3 trillion.
  • Cost Reduction: The efficiency program delivered CHF 2.1 billion in net savings since 2013. Corporate Center losses were lower due to reduced Net Credit Losses (NCL) and litigation expenses.
  • Tax Impact: A net tax expense of CHF 3.2 billion was recorded in Q4, including a CHF 2.9 billion write-down of Deferred Tax Assets (DTAs) due to the US Tax Cuts and Jobs Act.
  • Investment Bank: Q4 PBT was CHF 168 million, pressured by low volatility in Interest Rate and Credit Solutions (ICS), though Corporate Client Solutions (CCS) performed strongly.

Guidance, Outlook, and Risks

  • Strategic Targets (2018-2020):
    • Group adjusted return on equity target: Around 15% (excluding DTAs).
    • Group cost/income ratio target: Below 75%.
    • Global Wealth Management: 10-15% adjusted PBT growth, 65-75% cost/income ratio, and 2-4% net new money growth.
    • Asset Management: Around 10% PBT growth per annum.
    • Investment Bank: Adjusted return on attributed equity of at least 15%.
  • Capital Build-up: UBS intends to build approximately CHF 4 billion in CET1 capital over the next three years, with the leverage ratio (target ~3.7%) acting as the binding constraint.
  • Technology Investment: IT spend will remain slightly above 10% of revenues, with an additional CHF 1 billion in costs over the next three years focused on strategic initiatives.
  • Risks and Contingencies:
    • Regulatory: Basel III implementation may increase Risk-Weighted Assets (RWA) by CHF 40 billion through 2020 and an incremental CHF 35 billion from 2022.
    • Taxation: The new US tax law introduces the Base Erosion and Anti-abuse Tax (BEAT), potentially increasing 2018 tax liability by up to CHF 60 million.
    • Legacy Items: Remaining litigation and legacy matters are manageable but may take time to resolve.
    • Market Conditions: Low volatility continues to pressure the Investment Bank; interest rate environments impact net interest income.

Investor Verification Checklist

  • Verify the impact of the CHF 2.9 billion DTA write-down on future tax rates and capital adequacy.
  • Monitor the execution of the CHF 2 billion share buyback program and dividend sustainability.
  • Track the integration progress of Wealth Management and Wealth Management Americas.
  • Assess the effectiveness of cost reduction initiatives in achieving the sub-75% cost/income ratio target.
  • Review the impact of IFRS 9 adoption on credit loss volatility starting in 2018.
  • Confirm the timeline and magnitude of RWA increases due to final Basel III rules.