UBS Group AG current report, Q1 FY2018

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UBS Group AG Form 6-K Summary: First Quarter 2018

Business Context and Reporting Period

This Form 6-K, filed on April 23, 2018, presents the First Quarter 2018 results for UBS Group AG and UBS AG. The reporting period covers January 1, 2018, through March 31, 2018. The filing includes presentation materials and speaker notes from Group CEO Sergio P. Ermotti and Group CFO Kirt Gardner. The quarter was characterized by strong net profit growth and a diversified business performance, though results were influenced by market volatility and regulatory accounting changes.

Key Financial Metrics

  • Net Profit: Increased 19% year-over-year to over CHF 1.5 billion.
  • Pre-Tax Profit: Reported at nearly CHF 2 billion.
  • Adjusted Return on Tangible Equity (ex-DTAs): Reached a three-year high of almost 18%.
  • CET1 Leverage Ratio: Increased to 3.76%.
  • CET1 Capital Ratio: Strong at 13.1%.
  • Loss Absorbing Capacity (TLAC): Remained around CHF 80 billion.
  • Risk-Weighted Assets (RWA): Grew by CHF 16 billion to CHF 254 billion.
  • Global Wealth Management (GWM) PBT: Increased 14% in US dollars.
  • Investment Bank (IB) Return on Attributable Equity: Delivered 25%.
  • Asset Management Net New Money: Over CHF 30 billion (CHF 27 billion excluding money markets).

Material Changes vs. Prior Period

  • Operating Performance: Underlying operating performance improved by 20% (27% in USD), despite headwinds from higher funding costs and interest rates.
  • Divisional Growth:
    • Global Wealth Management: Record profits in the Americas (+19%) and APAC (+14%). Recurring net fee income grew 14%, outstripping invested asset growth for the first time in two years.
    • Investment Bank: PBT grew 20% in USD. Equities revenue increased 25%, and Corporate Client Solutions rose 22%. Fixed Revenue & Commodities (FRC) recovered from the challenging second half of 2017.
    • Personal & Corporate Banking: PBT was CHF 393 million. Net new business volume growth was 6.3%, the second-best quarter since 2007.
  • Corporate Center & ALM: The Corporate Center recorded a pre-tax loss of CHF 380 million. Group Asset and Liability Management (ALM) posted a loss of CHF 222 million, driven by a CHF 120 million negative variance from Treasury/OIS basis movements and higher funding costs.
  • Accounting Changes: Adoption of IFRS 9 on January 1, 2018, reduced IFRS equity by approximately CHF 600 million and CET1 capital by CHF 300 million.

Guidance, Outlook, and Risks

  • Capital Return: UBS launched a three-year share buyback program, targeting CHF 550 million for 2018, with purchases commencing in Q1.
  • Cost Management: Management expects the Group cost/income ratio to fall below 75%. Restructuring cost adjustments are expected to decline to approximately CHF 0.5 billion in 2018 and under CHF 200 million in 2019.
  • ALM Outlook: Retained Group ALM negative income is expected to be around CHF 100 million per quarter for the remainder of 2018, with optimization actions aiming to reduce this to CHF 50 million per quarter.
  • RWA Outlook: Approximately CHF 4 billion of the expected CHF 11 billion regulatory RWA increase over the next three quarters is anticipated in Q2.
  • Risks and Contingencies:
    • Continued low or negative interest rate environments and higher funding costs.
    • Regulatory changes in Switzerland, the US, and the UK, including TLAC and leverage ratio requirements.
    • Market volatility impacting RWA and ALM results.
    • Uncertainty regarding the UK exit from the EU (Brexit).
    • Tax impacts from the US Tax Cuts and Jobs Act (BEAT effects).

Investor Verification Checklist

  • Verify the impact of IFRS 9 adoption on equity and CET1 capital (CHF 600m and CHF 300m reductions respectively).
  • Confirm the sustainability of the Group ALM loss, currently projected at CHF 100m per quarter, and the timeline for optimization to CHF 50m.
  • Monitor the execution of the CHF 550 million share buyback program initiated in Q1.
  • Assess the trajectory of Risk-Weighted Assets (RWA), specifically the expected CHF 4 billion increase in Q2 due to regulatory changes.
  • Review the cost/income ratio trend to ensure it moves toward the sub-75% target amidst increased IT investments.