UBS Group AG current report, Q3 FY2015

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UBS Group AG: Q2 2015 Financial Summary

Business Context and Reporting Period

This Form 6-K summarizes the second-quarter 2015 results for UBS Group AG and UBS AG, reported on July 27, 2015. The period covers the three months ended June 30, 2015. UBS reported a robust quarter despite market uncertainty, highlighting the strength of its business model and progress in regulatory restructuring, including the transfer of approximately CHF 300 billion in assets to UBS Switzerland AG to enhance resolvability.

Key Financial Metrics

  • Net Profit: CHF 1.209 billion attributable to shareholders (up 53% vs. Q2 2014).
  • Adjusted Profit Before Tax: CHF 1.635 billion.
  • Diluted Earnings Per Share (EPS): CHF 0.32.
  • Operating Income: CHF 7.818 billion (down 12% vs. Q1 2015; up 9% vs. Q2 2014).
  • Operating Expenses: CHF 6.059 billion.
  • Return on Tangible Equity (ROTE): 11.0% for the quarter; 12.0% annualized for H1 2015.
  • Capital Ratios: Fully applied Basel III CET1 ratio of 14.4% (up 70 bps); Fully applied Swiss SRB leverage ratio of 4.7% (up 10 bps).
  • Liquidity: Liquidity Coverage Ratio (LCR) at 121%.
  • Total Assets: CHF 950.2 billion (down 9% from Q1 2015).

Material Changes vs. Prior Periods

  • Profitability Surge: Net profit attributable to shareholders rose 53% year-over-year, driven by strong performance across all business divisions and a reduction in the Non-core and Legacy Portfolio loss.
  • Divisional Performance:
    • Wealth Management: Best Q2 result since 2009 with adjusted pre-tax profit of CHF 769 million. Adjusted net new money was CHF 8.4 billion (excluding balance sheet optimization outflows).
    • Investment Bank: Adjusted pre-tax profit of CHF 617 million, featuring the best Q2 Equities result since 2012.
    • Retail & Corporate: Best Q2 result since 2010 with adjusted pre-tax profit of CHF 414 million.
    • Global Asset Management: Adjusted pre-tax profit of CHF 134 million with strong net new money of CHF 8.3 billion (excluding money market flows).
  • Balance Sheet Optimization: Total assets decreased by approximately CHF 99 billion from Q1 2015, reflecting a continued reduction in the Non-core and Legacy Portfolio (LRD reduced by CHF 14 billion in the quarter).
  • Cost/Income Ratio: Increased to 77.4% in Q2 2015 from 69.2% in Q1 2015, primarily due to lower operating income and specific restructuring charges.

Outlook, Risks, and Management Commentary

  • Management Commentary: CEO Sergio Ermotti emphasized maintaining momentum despite challenges and noted the establishment of UBS Switzerland AG as a major milestone for resolvability. The bank remains focused on disciplined strategy execution and investing for profitable growth.
  • Outlook: Management expects seasonal impacts to affect revenues and profits in Q3 2015. Macroeconomic challenges and geopolitical issues are expected to persist.
  • Regulatory & Structural Changes: UBS plans to establish a Group service company subsidiary in Q3 2015 to transfer shared services, aiding operational continuity in resolution scenarios. This is expected to qualify the bank for a rebate on progressive buffer capital requirements.
  • Risks & Contingencies:
    • Litigation: Provisions for litigation, regulatory, and similar matters remain elevated. Total provisions stood at CHF 2.368 billion as of June 30, 2015.
    • Deferred Tax Assets (DTA): UBS expects to revalue DTAs in Q3 2015, potentially resulting in a net upward revaluation of around CHF 1.5 billion if the US forecast period is extended.
    • Foreign Currency: Net foreign currency translation losses of around CHF 120 million are expected in H2 2015 due to branch/subsidiary disposals.

Key Facts for Investor Verification

  • Verify the impact of the CHF 6.6 billion balance sheet optimization outflow on Wealth Management net new money figures.
  • Monitor the Q3 2015 revaluation of Deferred Tax Assets and the potential CHF 1.5 billion upward adjustment.
  • Track the progress of the Non-core and Legacy Portfolio de-risking, which reduced the Leverage Ratio Denominator by CHF 33 billion in Q2.
  • Assess the sustainability of the Investment Bank's Equities performance, which achieved its best Q2 result since 2012.
  • Review the timeline for the establishment of the US intermediate holding company and the Group service company subsidiary.