Business Context and Reporting Period
This Form 6-K filing by UBS Group AG and UBS AG, dated July 24, 2020, presents standalone interim financial information for the six months ended June 30, 2020. The filing includes standalone financial statements for UBS Group AG (the holding company) and UBS Switzerland AG (a significant regulated subsidiary). The statements are prepared in accordance with Swiss Law on Accounting and Financial Reporting and Swiss GAAP, respectively, and are unaudited.
Key Financial Metrics
UBS Group AG (Holding Company)
| Metric (USD Million) | YTD 2020 | YTD 2019 |
|---|---|---|
| Operating Income | 3,461 | 3,567 |
| Operating Profit Before Tax | 2,560 | 3,314 |
| Net Profit | 2,559 | 3,314 |
| Total Assets | 94,512 | 93,028 (Dec 2019) |
| Total Liabilities | 54,047 | 53,576 (Dec 2019) |
| Equity Attributable to Shareholders | 40,465 | 39,452 (Dec 2019) |
Dividend Activity: An ordinary cash dividend of USD 0.365 per share (totaling USD 1,308 million) was paid in Q2 2020. A special dividend reserve of the same amount was also appropriated.
UBS Switzerland AG (Subsidiary)
| Metric (CHF Million) | YTD 2020 | YTD 2019 |
|---|---|---|
| Total Operating Income | 3,799 | 3,871 |
| Net Interest Income | 1,501 | 1,544 |
| Net Fee and Commission Income | 1,767 | 1,751 |
| Operating Profit | 819 | 653 |
| Net Profit | 654 | 502 |
| Total Assets | 304,256 | 285,014 (Dec 2019) |
| Total Liabilities | 291,679 | 272,341 (Dec 2019) |
| Total Equity | 12,577 | 12,673 (Dec 2019) |
Material Changes vs. Prior Period
- UBS Group AG Profit Decline: Net profit decreased by approximately 23% year-over-year (from USD 3,314 million to USD 2,559 million), primarily driven by a reduction in dividend income from the investment in UBS AG (USD 2,550 million vs. USD 3,250 million).
- UBS Switzerland AG Profit Growth: Net profit increased by 30% year-over-year (from CHF 502 million to CHF 654 million). This was supported by higher operating profit (CHF 819 million vs. CHF 653 million) despite a slight decrease in total operating income.
- Expense Management: UBS Switzerland AG saw a reduction in total operating expenses to CHF 2,980 million from CHF 3,218 million in the prior year, largely due to a significant decrease in amortization and impairment of goodwill (CHF 263 million vs. CHF 525 million).
- Balance Sheet Expansion: UBS Switzerland AG total assets grew by approximately CHF 19 billion compared to year-end 2019, driven by increases in mortgage loans and customer deposits.
Guidance, Outlook, and Risks
Accounting Policy Change: UBS Group AG revised its accounting policy regarding the disposal of treasury shares. Realized gains or losses are now recognized in the Voluntary earnings reserve rather than the income statement. This resulted in a net gain of USD 39 million being recognized in equity for the six months ended June 30, 2020, compared to a net loss of USD 180 million recognized in the income statement for the same period in 2019.
Structural Transfer: UBS Switzerland AG continues the transfer of a portion of Global Wealth Management's international business to UBS AG. A dividend in kind of CHF 2.1 billion was transferred in Q2 2019, with full legal transfer expected before the end of 2022. Compensation for UBS AG's share of net profits (CHF 212 million for H1 2020) is reflected in fee and commission expenses.
Joint and Several Liability: UBS Switzerland AG retains joint liability for approximately CHF 11 billion of contractual obligations of UBS AG existing as of the 2015 asset transfer date (down from CHF 17 billion at year-end 2019). Management assesses the probability of an outflow under this liability as remote.
Risks and Contingencies: The filing includes standard cautionary statements regarding the unaudited nature of the data and the impact of rounding. No specific new material risks or contingencies were detailed beyond the standard regulatory and operational disclosures.
Investor Verification Checklist
- Dividend Sustainability: Verify the source of the USD 1,308 million dividend payment (split between capital contribution reserve and total profit) and its impact on future capital reserves.
- Accounting Policy Impact: Confirm how the shift of treasury share gains/losses to equity (Voluntary earnings reserve) affects the comparability of UBS Group AG's reported net profit versus prior periods.
- Swiss Subsidiary Performance: Analyze the drivers behind the 30% increase in UBS Switzerland AG's net profit, specifically the reduction in goodwill amortization and the impact of the Wealth Management business transfer.
- Joint Liability Exposure: Monitor the decline in the CHF 11 billion joint liability exposure and the conditions under which FINMA could modify or convert these liabilities.
- Asset Quality: Review the increase in mortgage loans (CHF 154.9 billion) and customer deposits at UBS Switzerland AG for potential credit risk implications in the current economic environment.