Business Context and Reporting Period
This Form 6-K filing covers the Fourth Quarter 2023 and full-year results for UBS Group AG, concluding the period ended December 31, 2023. The report reflects the consolidated financial position following the acquisition of the Credit Suisse Group in June 2023. The filing details the ongoing integration of Credit Suisse, the wind-down of non-core assets, and the updated strategic targets for the combined entity.
Key Financial Metrics
| Metric | Q4 2023 | Q4 2022 (Pre-Acquisition) | Full Year 2023 | Full Year 2022 |
|---|---|---|---|---|
| Total Revenues | USD 10.86 billion | USD 8.03 billion | USD 40.83 billion | USD 34.56 billion |
| Operating Profit/(Loss) Before Tax | (USD 0.75 billion) | USD 1.94 billion | USD 29.92 billion | USD 9.60 billion |
| Net Profit/(Loss) Attributable to Shareholders | (USD 0.28 billion) | USD 1.65 billion | USD 29.03 billion | USD 7.63 billion |
| Diluted EPS (USD) | (0.09) | 0.50 | 8.81 | 2.25 |
| Cost/Income Ratio | 105.7% | 75.8% | 95.0% | 72.1% |
| Underlying Cost/Income Ratio | 93.0% | 76.4% | 87.2% | 74.5% |
| Common Equity Tier 1 (CET1) Ratio | 14.5% | 14.2% | 14.5% | 14.2% |
| Total Assets | USD 1.72 trillion | USD 1.10 trillion | USD 1.72 trillion | USD 1.10 trillion |
| Risk-Weighted Assets (RWA) | USD 546.5 billion | USD 319.6 billion | USD 546.5 billion | USD 319.6 billion |
Material Changes vs. Prior Period
- Q4 Reported Loss: The Group reported an operating loss of USD 751 million in Q4 2023, compared to a profit of USD 1.94 billion in Q4 2022. This shift is primarily due to the consolidation of Credit Suisse expenses (USD 4.1 billion) and integration-related costs (USD 1.75 billion), partially offset by higher revenues from the acquired entity.
- Full Year Profit Surge: Full-year 2023 net profit attributable to shareholders reached USD 29.03 billion, a 280% increase over 2022. This was driven by a one-time negative goodwill gain of USD 28.9 billion recognized upon the acquisition of Credit Suisse.
- Underlying Performance: On an underlying basis (excluding negative goodwill, integration costs, and purchase price allocation accretion), Q4 2023 operating profit before tax was USD 592 million, down 68% from the underlying profit of USD 1.87 billion in Q4 2022.
- Balance Sheet Expansion: Total assets increased by USD 73.3 billion quarter-over-quarter, largely due to currency effects and the inclusion of Credit Suisse balances. Customer deposits rose by USD 58.9 billion.
Guidance, Outlook, and Risks
Updated Targets (Exit Rate by End of 2026)
- Underlying Return on CET1 Capital: Around 15%.
- Underlying Cost/Income Ratio: Less than 70%.
- Gross Cost Savings: Approximately USD 13 billion compared to the combined 2022 baseline.
- Capital Guidance: CET1 ratio around 14%; CET1 leverage ratio greater than 4.0%.
- Long-term Goal: Reported RoCET1 of around 18% by 2028.
- Management expects revenues to be positively influenced by seasonal factors.
- The Investment Bank is expected to return to profitability due to improving market activity.
- Net interest income for Personal & Corporate Banking and Global Wealth Management is expected to be roughly flat sequentially.
- Reported net profit is expected to show substantial sequential improvement, despite approximately USD 1 billion in integration-related expenses.
- Integration Risks: Significant operational challenges remain in merging systems, cultures, and legal entities. The merger of UBS AG and Credit Suisse AG is expected to complete by Q2 2024.
- Regulatory Changes: Implementation of Basel III standards in Switzerland (effective Jan 2025) is estimated to increase RWA by approximately USD 25 billion. UBS was moved to Bucket 2 of the G-SIB list, increasing capital surcharges.
- Legal and Litigation: The Group faces significant contingent liabilities related to Credit Suisse legacy matters, including the Archegos collapse, Mozambique sovereign debt, and various benchmark rate manipulations. Provisions for litigation and regulatory matters totaled USD 3.98 billion as of year-end.
- Geopolitical Factors: Ongoing conflicts in the Middle East and Eastern Europe pose risks to supply chains, inflation, and market volatility.
- Negative Goodwill Impact: Verify the sustainability of the USD 28.9 billion negative goodwill gain, which significantly inflated full-year 2023 profits but is a one-time accounting event.
- Integration Cost Trajectory: Monitor the quarterly run-rate of integration-related expenses (USD 1.75 billion in Q4) against the target of USD 13 billion in total gross cost savings by 2026.
- Non-Core and Legacy Wind-down: Track the reduction of Risk-Weighted Assets (RWA) in the Non-core and Legacy division, which currently represents a significant portion of the Group's RWA and generated a pre-tax loss of USD 1.73 billion in Q4.
- Capital Ratios: Confirm that the CET1 ratio remains above the 14% guidance target despite the expected RWA increases from Basel III implementation and model migrations.
- Dividend and Buybacks: Verify the proposed 2023 dividend of USD 0.70 per share and the resumption of share repurchases (up to USD 1 billion in 2024) post-merger completion.