UBS Group AG current report, Q4 FY2022

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UBS Group AG: Q4 2022 Earnings Summary

Business Context and Reporting Period

This Form 6-K summarizes the Fourth Quarter 2022 earnings call remarks for UBS Group AG and UBS AG, dated February 1, 2023. The reporting period covers the full year ended December 31, 2022, and the fourth quarter specifically. UBS operates as a globally diversified wealth manager and investment bank with leading positions in the U.S., Asia Pacific, EMEA, and Switzerland.

Key Financial Metrics

  • Full Year 2022 Net Profit: $7.6 billion.
  • Full Year 2022 Return on CET1 Capital: 17.0%.
  • Full Year 2022 Cost/Income Ratio: 72.1%.
  • Q4 2022 Net Profit: $1.7 billion.
  • Q4 2022 Return on CET1 Capital: 14.7%.
  • Q4 2022 Cost/Income Ratio: 75.8%.
  • Q4 2022 Revenue: Down 8% year-over-year (underlying revenue ex-FX down 9%).
  • Q4 2022 Net Interest Income (NII): $2.1 billion, up 14% quarter-over-quarter.
  • Capital Position: CET1 ratio of 14.2% at year-end.
  • Capital Returns (2022): $7.3 billion distributed, including $5.6 billion in share repurchases (95% payout ratio).
  • Invested Assets: $4 trillion.
  • Net New Fee-Generating Assets (Q4): $23 billion (8% annualized growth).
  • Net New Fee-Generating Assets (Full Year): $60 billion (4% growth).

Material Changes vs. Prior Period

  • Revenue Mix: Q4 revenue declined due to depressed equity markets and lower transaction fees, partially offset by a 35% year-over-year increase in Net Interest Income (NII) within Global Wealth Management (GWM) and Personal & Corporate (P&C) banking.
  • Expense Management: Operating expenses decreased 13% year-over-year in Q4. Excluding litigation and FX, expenses were up 1% due to inflationary pressures on salaries and technology costs, offset by efficiency gains.
  • Investment Banking: Global Banking revenue fell 52% due to industry-wide slowdowns in M&A and capital markets, though Equities and FX/Rates/Credit delivered record or near-record performance.
  • Asset Management: Revenue decreased 31% driven by market headwinds and lower performance fees, though money market inflows were strong ($16 billion in Q4).
  • Regional Performance: EMEA Investment Bank achieved its best year on record for revenue and profit. Asia Pacific saw continued deleveraging in the first half, which halted in Q4, with net new fee-generating assets growing 12% for the full year.

Guidance, Outlook, and Risks

  • 2023 Financial Targets: Unchanged. UBS expects a Return on CET1 of 15-18% and a cost/income ratio of 70-73%.
  • Capital Return Guidance: Targeting at least $5 billion in share repurchases for 2023, alongside a progressive dividend.
  • Cost Guidance: Expenses ex-litigation and FX are expected to increase 2-3% year-over-year in 2023, reflecting inflation and continued investment.
  • NII Outlook: 2023 NII is expected to be higher than Q4 2022 annualized. Q1 2023 NII is anticipated to increase by a low-to-mid single digit percentage versus Q4 2022.
  • Strategic Initiatives: Expanded gross cost-saving program to $1.1 billion (up from $1 billion). Continued investment in technology ($4 billion budget) with $200 million in expected cost savings for 2023.
  • Risks and Contingencies:
    • Macroeconomic uncertainty including inflation, interest rate volatility, and geopolitical tensions (Russia-Ukraine war).
    • Regulatory changes, including the U.S. minimum tax (CAMT) expected to reduce CET1 accretion by approximately $250 million based on 2022 profitability.
    • Client sentiment remains cautious regarding market recovery and central bank policies.
    • Litigation risks, including the French tax case, remain ongoing with no specific timing updates provided.

Key Facts for Investor Verification

  • Verify the sustainability of the 17.0% full-year Return on CET1 against the 15-18% 2023 guidance in a potentially lower revenue environment.
  • Monitor the execution of the expanded $1.1 billion cost-saving program to ensure the 70-73% cost/income ratio target is met despite inflationary cost pressures.
  • Track the impact of the U.S. minimum tax (CAMT) on future capital accretion and dividend/buyback capacity.
  • Assess the trajectory of Net Interest Income (NII) growth as deposit mix shifts occur in response to rising interest rates.
  • Review the performance of the Investment Bank, specifically the ability to maintain profitability despite a 52% revenue drop in Global Banking and a 78% cost/income ratio.
  • Confirm the stability of net new fee-generating asset flows in Asia Pacific as China reopens and client sentiment shifts from "wait-and-see" to active deployment.