UBS Group AG: Q2 2022 Results Summary
Business Context and Reporting Period
This Form 6-K summarizes the Second Quarter 2022 results for UBS Group AG and UBS AG, reported on July 27, 2022. The quarter was characterized by a challenging global macroeconomic environment, including high inflation, the war in Ukraine, and strict COVID policies in Asia. These factors led to significant market sell-offs, with the MSCI World Index down 17% and investment-grade bonds down 5%, resulting in lower client asset levels across the franchise.
Key Financial Metrics
- Net Profit: USD 2.1 billion (up 5% year-on-year).
- Return on CET1 Capital: 18.9% (reported); underlying performance reflected strong results despite market volatility.
- Cost/Income Ratio: 70.6% (reported); operating expenses were down 1% year-on-year.
- Revenues: Benefited from higher interest rates, offsetting lower recurring fees and client activity on the private side. Global Markets revenues increased 10% year-on-year.
- Net Interest Income (NII): Grew 24% year-on-year in Global Wealth Management (GWM) and 37% in the Americas.
- Capital Position: CET1 capital ratio stood at 14.2% and CET1 leverage ratio at 4.37% as of June 30, 2022.
- Share Buybacks: USD 1.6 billion repurchased in Q2; total buybacks for the first half of 2022 reached USD 3.7 billion.
Material Changes vs. Prior Period
- One-Time Gains: Reported results included a USD 848 million net gain from the sale of a real estate joint venture in Japan and a USD 46 million loss on real estate-related items. Excluding these, underlying performance remained resilient.
- Asset Flows: Net new fee-generating assets were flat for the group. Asset Management saw USD 12 billion in net outflows, primarily from equities. Conversely, Asia Pacific saw USD 3.3 billion in net new fee-generating assets, and Switzerland saw USD 1 billion in inflows.
- Investment Banking: Global Banking revenues declined 57% year-on-year due to a 51% drop in the global fee pool, while Global Markets revenues rose 10% driven by Rates, FX, and record Financing activity.
- Deposits: Firm-wide deposits were flat year-on-year but down 5% sequentially. Deposit margins in GWM increased by over 60% year-on-year.
Guidance, Outlook, and Risks
- Capital Return: UBS expects to buy back approximately USD 5 billion of shares by the end of 2022. The payout ratio for the first half was 97%.
- Net Interest Income Guidance: Management reaffirmed previous guidance for NII on a static balance sheet basis. While US sensitivity has decreased due to prior rate hikes, Swiss Franc rate hikes are expected to provide tailwinds once rates move into positive territory.
- Strategic Initiatives: Continued focus on digital transformation, including the launch of "key4 Banking" in Switzerland and the "Circle One" ecosystem in Asia Pacific. Technology teams are increasingly composed of engineers (65%) to drive efficiency.
- Risks and Contingencies: Key risks include geopolitical tensions (Russia/Ukraine), inflationary pressures on costs, potential regulatory changes in Switzerland regarding liquidity requirements, and the impact of market volatility on client sentiment and asset levels. Management noted no meaningful change in mark-to-market losses in July.
Investor Verification Checklist
- Verify the impact of the USD 848 million Japan JV sale on reported net profit and the underlying organic growth rate.
- Monitor the trajectory of Net Interest Income (NII) in Switzerland as the Swiss National Bank moves rates from negative to positive territory.
- Assess the sustainability of Global Markets revenue growth given the reliance on high volatility and the specific mix of Rates/FX versus equities.
- Track the execution of the USD 5 billion share buyback program and the timing of completion relative to Q3 results.
- Review the status of the Wealthfront acquisition and regulatory approvals required for integration.
- Confirm the extent of deposit outflows in the US and whether they are driven by tax-related flows or structural shifts to money market funds.