UBS Group AG First Quarter 2023 Filing Summary
Business Context and Reporting Period
This Form 6-K reports the unaudited consolidated financial results for UBS Group AG for the quarter ended March 31, 2023. The reporting period is dominated by the announcement on March 19, 2023, of a merger agreement to acquire Credit Suisse Group AG, facilitated by Swiss authorities. The transaction is expected to close in the second quarter of 2023. UBS has appointed Sergio P. Ermotti as Group CEO effective April 5, 2023.
Key Financial Metrics
| Metric (USD millions) | Q1 2023 | Q4 2022 | Q1 2022 |
|---|---|---|---|
| Total Revenues | 8,744 | 8,029 | 9,382 |
| Operating Profit Before Tax | 1,495 | 1,937 | 2,729 |
| Net Profit Attributable to Shareholders | 1,029 | 1,653 | 2,136 |
| Diluted EPS (USD) | 0.32 | 0.50 | 0.61 |
| Return on Equity (%) | 7.2 | 11.7 | 14.3 |
| Cost/Income Ratio (%) | 82.5 | 75.8 | 70.7 |
| Common Equity Tier 1 (CET1) Ratio (%) | 13.9 | 14.2 | 14.3 |
| Liquidity Coverage Ratio (%) | 161.9 | 163.7 | 159.6 |
Material Changes vs. Prior Period
- Profit Decline: Net profit attributable to shareholders fell 52% year-over-year to USD 1.0 billion, driven by lower revenues and higher operating expenses.
- Revenue Pressure: Total revenues decreased 7% year-over-year. Net fee and commission income dropped USD 747 million due to negative market performance and lower client activity. This was partially offset by a USD 72 million increase in net interest income and fair value income.
- Expense Surge: Operating expenses rose 9% year-over-year to USD 7.2 billion. This was primarily driven by a USD 665 million increase in provisions related to the US residential mortgage-backed securities (RMBS) litigation matter within Group Functions.
- Capital Position: CET1 capital decreased by USD 0.9 billion to USD 44.6 billion, impacted by share repurchases and dividend accruals, though the CET1 ratio remains above the 13% guidance.
Guidance, Outlook, and Risks
- Acquisition of Credit Suisse: UBS expects to complete the acquisition in Q2 2023. The deal includes a loss-sharing agreement with the Swiss Confederation (covering up to CHF 9 billion of losses on non-core assets after a CHF 5 billion threshold) and a write-off of CHF 15.8 billion of Credit Suisse AT1 instruments. UBS expects to record material negative goodwill upon closing.
- Capital Returns: Share repurchases have been temporarily suspended due to the acquisition. A dividend of USD 0.55 per share was approved and paid in April 2023.
- Outlook: Management anticipates subdued client activity in Q2 2023 due to macroeconomic uncertainty, geopolitical tensions, and banking sector volatility. However, net interest income is expected to remain elevated due to the interest rate environment.
- Risks: Significant integration risks associated with the Credit Suisse merger, including potential failure to realize cost synergies and assumption of Credit Suisse's litigation liabilities. Ongoing exposure to litigation, regulatory matters, and geopolitical instability (Russia-Ukraine war) remains a key risk factor.
Investor Verification Checklist
- Verify the final closing date and regulatory approval status of the Credit Suisse acquisition.
- Monitor the specific valuation of negative goodwill expected to be recognized upon merger closing.
- Track the progress of the US RMBS litigation provision and potential future outflows.
- Confirm the timeline for the resumption of share repurchases post-merger.
- Review the integration plan for Credit Suisse's investment banking business, specifically the target to reduce its share of Group risk-weighted assets to approximately 25%.