Business Context and Reporting Period
This Form 6-K filing by UBS Group AG, dated May 8, 2024, summarizes the First Quarter 2024 (1Q24) earnings call. The period covers the three months ended March 31, 2024. The filing highlights the bank's progress in integrating Credit Suisse, marking a return to reported net profits and capital accretion. Key milestones include the expected merger of parent banks by the end of May 2024 and the transition to a single U.S. intermediate holding company shortly thereafter.
Key Financial Metrics
| Metric | Value |
|---|---|
| Reported Net Profit | $1.8 billion |
| Underlying Profit Before Tax (PBT) | $2.6 billion |
| Total Revenues (Underlying) | $12.0 billion |
| Total Revenues (Reported) | $12.7 billion |
| Operating Expenses (Underlying) | $9.2 billion |
| Operating Expenses (Reported) | $10.3 billion |
| Effective Tax Rate | 26% |
| CET1 Capital Ratio | 14.8% |
| Liquidity Coverage Ratio (LCR) | 220% |
| Net New Assets (GWM) | $27 billion |
| Net New Money (Asset Management) | $21 billion |
Material Changes vs. Prior Period
- Revenue Growth: Underlying revenues increased 15% quarter-over-quarter (QoQ) and operating expenses decreased 5% QoQ, driven by strong performance in Global Wealth Management (GWM) and the Investment Bank.
- Profitability: GWM underlying PBT doubled sequentially to $1.3 billion. The Investment Bank returned to profitability with an operating profit of $404 million, its first profitable quarter since the acquisition.
- Cost Reduction: The bank achieved an additional $1 billion in annualized run-rate gross cost savings in 1Q24, bringing total gross saves since end-2022 to $5 billion (nearly 40% of the $13 billion 2026 target).
- Non-Core and Legacy (NCL): NCL reported a pre-tax profit of $197 million, supported by $1 billion in revenues from position exits. Management revised the full-year 2024 underlying PBT guidance for NCL to a loss of approximately $2.5 billion, an improvement from the previously signaled $4 billion loss.
- Balance Sheet: Risk-weighted assets (RWA) declined 4% sequentially, with credit and counterparty risk RWAs dropping by $11 billion.
Guidance, Outlook, and Risks
Guidance and Outlook
- Capital Returns: UBS expects to resume share repurchases following the parent bank merger, targeting up to $1 billion in 2024. The dividend is expected to increase by a mid-teen percentage year-on-year.
- Cost Synergies: The bank expects to achieve 50% of its targeted $13 billion gross cost saves by the end of 2024. Integration-related expenses are expected to total $3.5 billion for the remainder of 2024.
- Net New Assets: Management maintains a two-year guidance of approximately $200 billion in net new assets for Global Wealth Management.
- Tax Rate: The effective tax rate is expected to normalize to a structural level of 23% by 2026.
Risks and Contingencies
- Regulatory Uncertainty: Ongoing reviews of Switzerland's "too-big-to-fail" regime may impact capital requirements. UBS noted it is not involved in the consultation process and cannot quantify potential impacts yet, though it has already absorbed approximately $20 billion in additional capital requirements related to the acquisition and Basel 3 rules.
- Integration Risks: The integration of Credit Suisse presents significant operational challenges over a 3-5 year horizon, including the risk of failing to achieve anticipated cost reductions.
- Macroeconomic Factors: Geopolitical conflicts (Middle East, Russia-Ukraine), inflation, and interest rate volatility remain key risks to global markets and client sentiment.
Investor Verification Checklist
- Regulatory Capital Impact: Verify the final outcome of the Swiss Federal Council's review on capital requirements and its specific impact on UBS's parent bank capital and CET1 ratio.
- Non-Core Run-off: Monitor the sustainability of the $1 billion revenue gain in Non-core and Legacy; management expects future revenues from this segment to be nil net of hedging costs.
- Integration Milestones: Confirm the successful completion of the parent bank merger by the end of May 2024 and the subsequent resumption of share buybacks.
- Cost Synergy Realization: Track the pace of gross cost savings in 2025, as the bank anticipates a deceleration in savings during the intensive integration phase of late 2024.
- Tax Rate Normalization: Watch for the effective tax rate to rise in Q2 2024 due to forecasted losses in specific Credit Suisse legal entities before the planned mergers.