UBS Group AG: First Quarter 2021 Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated April 27, 2021, reports the First Quarter 2021 results for UBS Group AG and UBS AG. The period was characterized by strong client activity, record invested assets in Wealth and Asset Management, and a constructive market backdrop. However, the quarter was significantly impacted by an idiosyncratic event: the default of a prime brokerage client (Archegos Capital Management), resulting in a $774 million trading loss.
Key Financial Metrics
- Net Profit: $1.8 billion.
- Pre-Tax Profit (PBT): $2.3 billion (up 14% year-over-year).
- Operating Income: Up 10% year-over-year.
- Return on CET1 Capital: 18.2%.
- Return on Tangible Equity: 14%.
- Cost-to-Income Ratio: 74%.
- CET1 Capital Ratio: Increased to 14%.
- Share Repurchases: $1.1 billion completed year-to-date.
- Invested Assets: Grew 33% year-over-year; Asset Management assets reached over $1.1 trillion.
Material Changes vs. Prior Period
- Investment Bank (IB): PBT declined 42% to $412 million, primarily due to the $774 million prime brokerage loss. Excluding this loss, the IB would have posted a record quarter with returns above 30%. Global Markets revenues fell 27% due to the loss, while Global Banking revenues rose 48% driven by Equity Capital Markets.
- Global Wealth Management (GWM): PBT increased 16% to $1.4 billion, driven by transaction activity and loan growth. Revenues grew 7%, and the cost-to-income ratio improved by 1.4 percentage points.
- Asset Management (AM): PBT surged 45% to $227 million, the highest Q1 level since 2008. Net inflows totaled $26 billion, with $8 billion in sustainable strategies.
- Personal & Corporate Banking (Switzerland): PBT increased 11% to CHF 358 million. Operating expenses rose 8% due to accelerated branch closures and technology investments.
Guidance, Outlook, and Strategic Initiatives
Management outlined a refreshed strategic framework centered on the purpose: "Reimagining the power of investing. Connecting people for a better world." Key strategic imperatives include focusing on high-growth markets (US and Asia), leveraging technology as a differentiator, and driving efficiency.
- Cost Outlook: Full-year 2021 costs (excluding variable compensation, restructuring, and litigation) are expected to rise approximately 1% adjusted for currency. Restructuring expenses of around $300 million are anticipated in Q2 2021.
- Efficiency Target: UBS aims to generate approximately $1 billion in annual cost savings by 2023 through simplification and efficiency measures.
- Capital Return: Share repurchases will resume shortly. Management expects to operate at the upper end of the 12-15% return on CET1 range.
- Risk Management: The firm is reviewing prime brokerage and Global Family Office relationships and enhancing risk controls following the Archegos event. No regulatory enforcement proceedings have been initiated by FINMA as of the filing date.
Investor Verification Checklist
- Verify the specific details of the $774 million trading loss and the subsequent $87 million loss in Q2 related to the prime brokerage client default.
- Confirm the timeline and magnitude of the $300 million restructuring expenses expected in Q2 2021.
- Monitor the progress of the $1 billion annual cost savings target and the associated "cost to achieve."
- Track the evolution of the new "net new fee-generating assets" KPI for Global Wealth Management versus historical "net new money" metrics.
- Assess potential regulatory capital add-ons or changes to risk-weighted assets (RWA) stemming from the Archegos incident and Basel III finalization.
- Review the status of the French tax evasion case, with a court decision expected in September 2021.