UBS Group AG Third Quarter 2015 Filing Summary
Business Context and Reporting Period
This Form 6-K filing covers the third quarter ended September 30, 2015. The macroeconomic environment was characterized by high volatility, with the S&P 500 and STOXX 600 experiencing their worst quarterly performance since 2011. Market uncertainty was driven by concerns regarding China's economic outlook and shifting expectations regarding US interest rates. Despite these challenges, UBS reported solid performance, maintaining its position as the best-capitalized large global bank.
Key Financial Metrics
| Metric | Q3 2015 | Q2 2015 | Q3 2014 |
|---|---|---|---|
| Net Profit (Attributable to Shareholders) | CHF 2,068 million | CHF 1,209 million | CHF 762 million |
| Diluted Earnings Per Share | CHF 0.54 | CHF 0.32 | CHF 0.20 |
| Adjusted Profit Before Tax | CHF 979 million | CHF 1,635 million | CHF (424) million |
| Operating Income | CHF 7,170 million | CHF 7,818 million | CHF 6,876 million |
| Operating Expenses | CHF 6,382 million | CHF 6,059 million | CHF 7,430 million |
| Return on Tangible Equity (RoTE) | 18.3% | 11.0% | 7.1% |
| CET1 Capital Ratio (Fully Applied) | 14.3% | 14.4% | 13.7% |
| Leverage Ratio (Fully Applied) | 5.0% | 4.7% | 4.2% |
Material Changes vs. Prior Period
- Profitability: Net profit increased 71% quarter-over-quarter (QoQ) and 171% year-over-year (YoY). This surge was significantly aided by a net tax benefit of CHF 1,295 million, primarily due to a CHF 1,513 million upward revaluation of deferred tax assets in the US.
- Income: Operating income decreased 8% QoQ to CHF 7.17 billion, driven by lower net fee and commission income and a reduced own credit gain. Adjusted operating income fell 408 million CHF QoQ.
- Expenses: Operating expenses rose 5% QoQ to CHF 6.38 billion. This increase was largely due to CHF 521 million higher net charges for provisions for litigation, regulatory, and similar matters, partially offset by lower personnel expenses.
- Capital: The fully applied CET1 ratio decreased slightly to 14.3% due to a CHF 6.5 billion increase in risk-weighted assets (RWA), while the leverage ratio improved to 5.0%.
Guidance, Outlook, and Risks
- Regulatory Changes: The Swiss Federal Council proposed stricter capital rules for systemically important banks, including a targeted leverage ratio of 5% and higher CET1 requirements. UBS intends to meet these requirements by retaining earnings and issuing AT1 instruments and TLAC-eligible senior debt without increasing overall funding levels.
- Outlook: Management expects macroeconomic challenges and geopolitical issues to persist. Headwinds include low interest rates, negative market performance in certain asset classes, and a weak euro against the Swiss franc. The firm remains committed to its cost reduction target of CHF 2.1 billion.
- Business Performance:
- Wealth Management: Resilient adjusted profit of CHF 698 million despite low client activity. Adjusted net new money was CHF 3.5 billion.
- Investment Bank: Strong performance with adjusted profit of CHF 614 million; revenues up 6% YoY.
- Asset Management: Adjusted profit of CHF 137 million, with net new money outflows of CHF 7.6 billion (excluding money market flows) driven by client liquidity needs.
- Risks: Significant exposure to litigation and regulatory provisions remains elevated. The firm is monitoring the impact of the strong Swiss franc on the domestic economy and exporters.
Key Facts for Investor Verification
- Tax Benefit Impact: Verify the sustainability of the CHF 1,295 million net tax benefit, which was driven by a one-time revaluation of US deferred tax assets and an extension of the forecast period.
- Regulatory Provisions: Monitor the trend of provisions for litigation and regulatory matters, which increased by CHF 521 million QoQ to CHF 592 million.
- Capital Requirements: Assess the impact of the new Swiss "too big to fail" framework on future capital returns and funding costs.
- Asset Management Flows: Review the drivers behind the CHF 7.6 billion net outflow in Asset Management (excluding money market funds) and its impact on fee income.
- Legal Structure: Confirm the completion of the squeeze-out of minority shareholders in UBS AG, resulting in 100% ownership by UBS Group AG.