UBS AG Third Quarter 2024 Filing Summary
Business Context and Reporting Period
This Form 6-K incorporates the UBS Group AG Third Quarter 2024 Report, covering the period ended September 30, 2024. The filing reflects the consolidated results following the acquisition of the Credit Suisse Group. Key operational themes include the ongoing integration of Credit Suisse, the winding down of the Non-core and Legacy division, and the voluntary acceleration of the amortization of transitional purchase price allocation (PPA) adjustments for regulatory capital purposes.
Key Financial Metrics
| Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Total Revenues (USD m) | 12,334 | 11,695 | 36,976 | 29,979 |
| Operating Profit Before Tax (USD m) | 1,929 | (184) | 5,773 | 29,006 |
| Net Profit Attributable to Shareholders (USD m) | 1,425 | (715) | 4,315 | 27,645 |
| Diluted EPS (USD) | 0.43 | (0.22) | 1.29 | 8.46 |
| Cost/Income Ratio (%) | 83.4 | 99.5 | 83.5 | 91.2 |
| Underlying Cost/Income Ratio (%) | 78.5 | 89.3 | 78.8 | 85.1 |
| Common Equity Tier 1 (CET1) Ratio (%) | 14.3 | 14.1 | 14.3 | 14.1 |
| Return on Equity (%) | 6.7 | (3.4) | 6.8 | 52.1 |
| Return on Tangible Equity (%) | 7.3 | (3.7) | 7.4 | 57.7 |
| Total Assets (USD bn) | 1,623.9 | 1,643.7 | 1,623.9 | 1,643.7 |
Material Changes vs. Prior Period
- Profitability: Operating profit before tax turned positive at USD 1.9 billion in Q3 2024, compared to a loss of USD 184 million in Q3 2023. This improvement was driven by a 5% increase in total revenues and a 12% decrease in operating expenses. The prior year's YTD results were significantly distorted by USD 27.3 billion of negative goodwill from the Credit Suisse acquisition.
- Revenue Drivers: Net fee and commission income increased by USD 461 million (8%) to USD 6.5 billion, driven by positive market performance and higher client activity. Net interest income increased by USD 142 million, though underlying net interest income in Global Wealth Management and Personal & Corporate Banking declined due to lower deposit margins.
- Expense Reduction: Operating expenses decreased by USD 1.4 billion year-over-year, primarily due to a USD 913 million reduction in integration-related expenses. Personnel expenses fell by USD 678 million.
- Capital Position: The CET1 capital ratio decreased to 14.3% from 14.9% in Q2 2024. This was primarily due to a voluntary USD 3.4 billion acceleration of the amortization of transitional PPA adjustments, which reduced CET1 capital. Excluding this adjustment, the ratio would have been 14.9%.
Guidance, Outlook, and Risks
- Q4 2024 Outlook: Management anticipates a mid-single-digit decline in net interest income for Global Wealth Management and a low single-digit decline for Personal & Corporate Banking. Non-core and Legacy is expected to generate a quarterly pre-tax loss consistent with prior guidance. The quarterly tax rate is expected to be around 35%.
- Capital Returns: UBS expects to complete its planned USD 1 billion of share repurchases in Q4 2024. The ambition to continue share repurchases in 2025 and for capital returns in 2026 to exceed pre-acquisition levels remains unchanged.
- Basel III Implementation: The adoption of final Basel III standards in January 2025 is expected to increase Risk-Weighted Assets (RWA) by a low single-digit percentage, reducing the CET1 capital ratio by approximately 30 basis points. UBS expects to operate with a CET1 ratio of around 14% post-implementation.
- Risks and Contingencies:
- Integration Risks: Ongoing challenges in migrating client accounts and integrating systems, though progress is being made (e.g., completion of Luxembourg and Hong Kong migrations).
- Legal and Regulatory: Significant provisions exist for litigation and regulatory matters, including cross-border wealth management inquiries, mortgage-related matters (RMBS), and the Archegos Capital Management relationship. UBS estimates future losses for disclosed litigation matters not covered by existing provisions to be in the range of USD 0 billion to USD 1.8 billion.
- Geopolitical: Continued monitoring of conflicts in the Middle East and Russia-Ukraine, as well as the impact of US elections and global trade relations.
Key Facts for Investor Verification
- Capital Amortization: Verify the impact of the voluntary USD 3.4 billion acceleration of PPA amortization on the CET1 capital ratio and future capital return capacity.
- Underlying Performance: Distinguish between reported results and "underlying" results (excluding PPA effects and integration costs) to assess core business trends, particularly in Global Wealth Management and the Investment Bank.
- Non-core and Legacy: Monitor the reduction of Risk-Weighted Assets (RWA) and the exit of positions in the Non-core and Legacy division, which currently holds USD 44.8 billion in RWA.
- Share Repurchases: Confirm the completion of the USD 1 billion share repurchase program in Q4 2024 and the status of the 2022 program shares pending cancellation.
- Basel III Impact: Assess the potential 30 basis point reduction in the CET1 ratio upon the January 2025 implementation of final Basel III standards.