UBS Group AG current report, Q3 FY2021

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UBS Group AG: Third Quarter 2021 Results Summary

Business Context and Reporting Period

This Form 6-K filing contains the transcript of UBS Group AG's Third Quarter 2021 earnings presentation and Q&A session, dated October 27, 2021. The reporting period covers the three months ended September 30, 2021. CEO Ralph Hamers and CFO Kirt Gardner highlighted a quarter of strong momentum across all business lines, driven by a positive market backdrop, strategic investments in the "ecosystem for investing," and disciplined cost execution.

Key Financial Metrics

  • Net Profit: $2.3 billion, the highest quarterly net profit in nearly 15 years (since 2007).
  • Pre-Tax Profit (PBT): $2.9 billion, up 11% year-over-year.
  • Operating Income: $9.1 billion, up 2% year-over-year (excluding one-off gains from the prior year).
  • Return on CET1 Capital: 20.8%.
  • Return on Tangible Equity: 17.2%.
  • Cost-to-Income Ratio: 68.7%, the lowest in over a decade.
  • CET1 Capital Generation: $2.8 billion in the quarter; $6.1 billion year-to-date.
  • CET1 Ratio: 14.9%.
  • Share Repurchases: $600 million in Q3; $2 billion year-to-date.

Material Changes vs. Prior Period

  • Global Wealth Management (GWM): PBT surged 43% to $1.5 billion (record high). Net new fee-generating assets (NNFGA) were $19 billion (5% annualized). Net new loans were $3 billion, driven by the Americas, partially offset by deleveraging in Asia Pacific due to China policy uncertainty.
  • Investment Bank (IB): PBT rose 32% to $837 million (best since Q1 2013). Global Banking revenues increased 22%, with Advisory up 78% and Equity Capital Markets up 32%. Global Markets revenues were $1.4 billion, with Equities posting a record quarter.
  • Personal & Corporate Banking (P&C): PBT increased 44% to CHF 439 million. Recurring net fee income hit an all-time high, driven by CHF 700 million in net new investment product inflows.
  • Asset Management: PBT grew 27% year-over-year. Net inflows were $1 billion, a moderation from the exceptional growth seen in the previous six quarters.

Guidance, Outlook, and Strategic Commentary

  • Strategic Refresh: Management announced a full strategic update and new financial targets will be provided on February 1, 2022. Current priorities include "Reimagining the power of investing," safeguarding clients/people, and navigating market volatility.
  • Regional Focus:
    • Switzerland: Targeting a cost-to-income ratio of ~55% by 2025 through digital transformation and efficiency gains.
    • Americas: Focus on growing the ecosystem, enhancing banking capabilities for business owners, and launching a digital-led service proposition for affluent clients.
  • Technology: Accelerating the "Agile@UBS" initiative, transitioning 9,000 colleagues to cross-functional teams, with a goal of 25,000 by end of 2022. Migrating 1,000 applications to the cloud.
  • Capital Allocation: UBS intends to return all excess capital above a 13% CET1 target, with a preference for share buybacks. A further $600 million in buybacks is expected in Q4.
  • Risks and Contingencies:
    • Asia Pacific: Client sentiment remains muted due to China policy changes, leading to deleveraging and asset sales. Management expects a recovery but notes uncertainty.
    • Regulatory: Anticipated regulatory add-ons of approximately $2 billion related to prime brokerage and market risk updates in 2022.
    • Tax Sensitivity: A 1 percentage point increase in the US federal corporate income tax rate would increase the value of US deferred tax assets by approximately $300 million.

Key Facts for Investor Verification

  • Verify the sustainability of the 20.8% Return on CET1, noting the mix of cyclical market performance and structural cost improvements.
  • Monitor the February 2022 strategic update for revised financial targets and the specific roadmap for the Americas and Switzerland.
  • Track the impact of regulatory capital add-ons (estimated $2 billion) on the CET1 ratio and capital return capacity in 2022.
  • Assess the trajectory of Asia Pacific flows and lending given the ongoing policy uncertainty in China.
  • Confirm the execution of the "Agile@UBS" transformation and its impact on technology spend efficiency and time-to-market.