UBS Group AG Third Quarter 2023 Filing Summary
Business Context and Reporting Period
This Form 6-K filing covers the third quarter ended September 30, 2023. The period is defined by the ongoing integration of Credit Suisse Group, acquired on June 12, 2023. Starting in Q3 2023, UBS reports five business divisions: Global Wealth Management, Personal & Corporate Banking, Asset Management, Investment Bank, and a new "Non-core and Legacy" division. Comparative data for Q3 2023 includes three months of Credit Suisse operations, whereas Q3 2022 reflects legacy UBS only.
Key Financial Metrics
| Metric (USD) | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 |
|---|---|---|---|---|
| Total Revenues | 11,695 | 8,236 | 29,979 | 26,534 |
| Operating Profit / (Loss) Before Tax | (255) | 2,323 | 30,597 | 7,667 |
| Net Profit / (Loss) Attributable to Shareholders | (785) | 1,733 | 29,235 | 5,977 |
| Diluted EPS (USD) | (0.24) | 0.52 | 8.95 | 1.74 |
| Common Equity Tier 1 (CET1) Ratio | 14.4% | 14.4% | 14.4% | 14.4% |
| Liquidity Coverage Ratio (LCR) | 196.5% | 162.7% | 196.5% | 162.7% |
| Total Assets | 1,644,522 | 1,111,753 | 1,644,522 | 1,111,753 |
Note: YTD 2023 results include a one-time negative goodwill gain of USD 28.9 billion recognized upon the acquisition of Credit Suisse.
Material Changes vs. Prior Period
- Profitability: The Group reported a net loss of USD 785 million in Q3 2023, compared to a profit of USD 1.7 billion in Q3 2022. This decline is primarily driven by higher operating expenses (up 97% to USD 11.6 billion) due to the consolidation of Credit Suisse and integration costs, alongside increased credit loss expenses (USD 306 million vs. a release of USD 3 million).
- Revenue: Total revenues increased 42% to USD 11.7 billion, largely due to the inclusion of Credit Suisse revenues (USD 3.5 billion). Underlying revenues (excluding purchase price allocation accretion) increased 34%.
- Capital: CET1 capital decreased by USD 1.7 billion to USD 78.6 billion, reflecting the operating loss, tax expenses, and foreign currency translation effects. However, the CET1 ratio remained stable at 14.4% due to a corresponding decrease in risk-weighted assets (RWA).
- Balance Sheet: Total assets increased to USD 1.64 trillion, reflecting the consolidation of Credit Suisse assets. Customer deposits increased by USD 20.6 billion quarter-over-quarter.
Guidance, Outlook, and Risks
- Integration Outlook: UBS aims to substantially complete the integration by the end of 2026, targeting gross cost reductions of over USD 10 billion compared to the pre-acquisition combined cost base. A single US intermediate holding company is planned for the first half of 2024.
- Market Outlook: Management notes uncertainties regarding interest rates, inflation, and geopolitical tensions (Middle East, Ukraine). They expect clients to shift cash from deposits to higher-yielding products, potentially impacting net interest income.
- Risks and Contingencies:
- Legal/Regulatory: Significant provisions exist for litigation and regulatory matters, including a USD 1.435 billion settlement with the US DOJ regarding residential mortgage-backed securities. A French Supreme Court hearing regarding tax fraud allegations is scheduled for November 15, 2023.
- Credit Risk: Credit loss expenses increased due to provisions in the Personal & Corporate Banking and Non-core and Legacy divisions.
- Operational Risk: The Group faces heightened cyber risk and operational complexity due to the scale of the integration.
Key Facts for Investor Verification
- Underlying Performance: Verify underlying profit before tax (USD 844 million in Q3 2023) to assess core business performance excluding the USD 28.9 billion negative goodwill and integration-related expenses.
- Cost Reduction Progress: Monitor the execution of the USD 10 billion cost reduction target and the timeline for merging UBS AG and Credit Suisse AG in 2024.
- Non-Core and Legacy Run-off: Track the reduction of the Non-core and Legacy portfolio, which reported a significant operating loss of USD 1.9 billion in Q3 2023.
- Regulatory Capital: Confirm that the CET1 ratio remains above the Swiss Systemically Relevant Bank (SRB) requirements (14.4% vs. 14.2% minimum) despite the integration costs.
- Legal Settlements: Monitor the outcome of the French Supreme Court appeal and any further developments in the US residential mortgage-backed securities litigation.