UBS Group AG current report, Q1 FY2019

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UBS Group AG: First Quarter 2019 Results Summary

Business Context and Reporting Period

This Form 6-K filing, dated April 25, 2019, presents the First Quarter 2019 results for UBS Group AG and UBS AG. The reporting period covers January 1, 2019, through March 31, 2019. The results were presented by Group CEO Sergio Ermotti and Group CFO Kirt Gardner, highlighting performance against a backdrop of significant external headwinds, including geopolitical risks, market volatility, and a challenging beta environment.

Key Financial Metrics

  • Net Profit: USD 1.1 billion.
  • Return on CET1 Capital: 13.3%.
  • CET1 Capital Ratio: 13.0% (Target range: 12.7% - 13.3%).
  • Tier 1 Leverage Ratio: 5.4% (Target: >3.7%).
  • Effective Tax Rate: 26% for the quarter (Cash tax portion: 11%).
  • Restructuring Expenses: USD 31 million (down over USD 100 million year-over-year).
  • Global Wealth Management (GWM) Net New Money: USD 22 billion globally; USD 16 billion in APAC (record); USD 14 billion in Global UHNW.
  • Invested Assets: APAC invested assets exceeded USD 400 billion for the first time.
  • Personal & Corporate Banking (P&C) PBT: CHF 389 million (up 8% year-over-year).
  • Asset Management PBT: USD 109 million (up 2% year-over-year).
  • Investment Bank (IB) Return on Attributable Equity: 7% for the quarter; 13% in March alone.

Material Changes vs. Prior Period

  • Revenue Headwinds: GWM operating income declined 5% year-over-year due to lower recurring fees (down 8%) and transaction-based income (down 20%), driven by Q4 2018 market sell-offs and muted client sentiment. Investment Bank revenues were pressured by low volatility and a strong Q1 2018 comparative, though Fixed Income, Rates, and Commodities (FRC) revenues rose 9%.
  • Cost Discipline: Reported costs were over USD 600 million lower than the prior year (excluding pension gains), largely offsetting revenue declines. This was driven by lower variable compensation, strategic cost measures, and a stronger US dollar.
  • Regional Performance: APAC saw record net new money and a rebound in activity in March. The Swiss business reported an 8% increase in PBT. The Americas saw invested assets up 3% year-over-year, though transaction revenues remained down.
  • Regulatory Impact: Adoption of IFRS 16 resulted in a USD 3.5 billion increase in Risk-Weighted Assets (RWA) and Leverage Ratio Denominator (LRD). Operational risk RWA increased by USD 2.8 billion related to the French cross-border tax matter.

Guidance, Outlook, and Risks

  • Capital Returns: UBS expects mid-single digit growth in the cash dividend for 2019. The ambition to repurchase up to USD 1 billion of shares remains, with repurchases expected to restart in the second quarter, contingent on beta factor improvements.
  • Cost Outlook: Tactical cost actions are expected to generate at least USD 300 million in incremental savings, with most benefits materializing in the second half of the year. Full-year 2019 restructuring expenses are guided at around USD 200 million.
  • Capital Optimization: Initiatives to optimize LRD are expected to reduce consumption by approximately USD 20 billion, with benefits expected in the second half of the year.
  • Risks and Contingencies:
    • French Tax Matter: No new developments; the USD 2.8 billion RWA increase has been acknowledged by FINMA. Management is preparing for the next stage.
    • Market Environment: Geopolitical risks, trade tensions, and recession fears continue to suppress client sentiment and trading activity.
    • Regulatory Headwinds: Ongoing regulatory changes continue to impact RWA and LRD levels.

Investor Verification Checklist

  • Verify the reconciliation of adjusted results to reported IFRS results, specifically regarding the USD 31 million restructuring expense and the impact of IFRS 16 adoption.
  • Monitor the timing and execution of the share buyback program, which is dependent on market beta factors and regulatory approvals.
  • Track the evolution of the French tax matter and any potential updates to operational risk RWA in the third quarter model refresh.
  • Assess the sustainability of cost savings, particularly the reliance on variable compensation flexibility versus structural cost reductions.
  • Review the quality of net new money inflows, specifically the proportion of cash versus invested assets in APAC and the Americas, to gauge future fee revenue potential.