UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
Date: April 23, 2018
UBS Group AG
Commission File Number: 1-36764
UBS AG
Commission File Number: 1-15060
(Registrants'
Names)
Bahnhofstrasse 45, Zurich, Switzerland
Aeschenvorstadt 1, Basel, Switzerland
(Address of principal executive offices)
Indicate by check mark whether the registrant files or
will file annual reports under cover of Form 20‑F or Form 40-F.
Form 20-F
x
Form
40-F
o
This
Form 6-K consists of the presentation materials related to the First Quarter
2018 Results of UBS Group AG and UBS AG, and the related speaker notes, which
appear immediately following this page.
First
quarter
2018
results
23 April
2018
Speeches
by
Sergio
P.
Ermotti
,
Group
Chief
Executive
Officer
and
Kirt
Gardner
,
Group
Chief
Financial
Officer
Sergio
P.
Ermotti
Slide 1 – Cautionary statement
Thank
you, Caroline. Good morning everyone.
Slide 2 – Net profit +19% YoY to 1.5bn
We
started 2018 on a positive note with strong net profit growth, higher returns,
and a strong capital position. The quarter turned out to be a tale of two
halves, with an exuberant start in January that went well beyond typical
seasonality, followed by a more muted finish.
Once
again, our results showed the power of our diversified business, with strong
divisional results in the Investment Bank and Global Wealth Management, and
strong regional performances in the Americas and Asia Pacific. Net profit
increased by 19% to over 1.5 billion francs and we reported nearly 2 billion
francs in pre-tax profit. Our adjusted return on tangible equity ex-DTAs
reached a three-year high of almost 18%.
The
CET1 leverage ratio, which we currently view as our binding constraint,
increased to 3.76%. As anticipated, our CET1 capital ratio is strong at 13.1%
and our loss absorbing capacity remained around 80 billion francs.
Slide 3 – Very strong underlying operating
performance
Our
excellent headline earnings went hand in hand with very strong underlying
operating performance, which improved by 20%, or 27% in US dollars – all while
continuing to invest for growth and efficiency. Bear in mind that all of our
businesses are affected by continued headwinds from higher funding and Swiss
franc and euro interest rates.
Slide 4 – 1Q18 highlights and strategic
priorities
There
are a few highlights of our first quarter performance I'd like to draw out.
Global
Wealth Management delivered growth across all revenue lines and in all regions.
Adjusted pre-tax profit increased 14% in dollars, which I will come back to
shortly.
Our
Swiss Personal & Corporate business delivered strong underlying results
increasing transaction-based and recurring fee income, amid persistent
headwinds from low interest rates. I'm also pleased about the continued good
net new business volume growth.
With
over 30 billion in inflows, Asset Management had another very strong net new
money quarter and its invested assets reached a decade-high.
The
IB delivered a strong 25% return on attributable equity. The result
demonstrates that we are very competitive in all market conditions. The best
performances came from our traditional areas of strength: Equities and Corporate
Client Solutions, while FRC recovered from last year's challenging second half.
Our
businesses' strong performance was partially offset by Group Asset and
Liability Management results, which were affected by the widening of US
Treasury–OIS spreads on our HQLA, which we report through the P&L rather
than OCI, like many of our peers. These market factors are most likely
temporary, but we also saw the higher funding costs we have highlighted in the
past, and these are likely to remain elevated. Kirt will explain the details
later.
Throughout
the quarter we continued to invest in technology. In line with our earlier
announcement, our spend increased by over 100 million francs year on year.
We
also completed the processes necessary to launch our 3 year buyback program, so
we will start buying this quarter, with a target of 550 million for the year.
Slide 5 – Global WM – Unique strategic growth
drivers
As
I mentioned earlier, Global Wealth Management had an excellent first quarter.
The results were driven by particularly strong performances in our areas of
strategic focus. The Americas and APAC saw double-digit growth to record
levels, underlining our unique positioning in these large and fast growing
markets. In addition, profit from our unrivaled global Ultra High Net Worth
business grew by a third.
Slide 6 – Global WM – driving profitable
growth
As
well as our strong pre-tax growth, we also saw good momentum in net new money
and our cost/income ratio improved. In addition we delivered a further increase
in mandate penetration and growth in loans. So overall, we're in a great
position to sustain high quality, long-term growth.
We
are also pleased with the progress we are making in creating a new
organization. In the first 80 days, our focus was on aligning support and
control functions, establishing a more global Ultra High Net Worth
organization, redesigning our operations in Latin America and streamlining
marketing to further increase client acquisition and retention, just to name a
few examples. We are also combining technology roadmaps to deliver the best
global solutions for our clients, where possible and economically sensible.
There
are a number of other areas that we're looking at to support our priorities
over the next few years. In a nutshell, with more [efficient] resource usage
and by globalizing best in class processes, products and services, we will
support the strong growth expectations we have for the business.
So
to conclude, I'm very pleased with the first quarter. The business is in good
shape. Looking ahead, our momentum is positive. We expect the strengths of our
balanced business model to remain evident in the second quarter's performance.
So
with this, I'd like to hand over to Kirt.
Kirt Gardner
Thank
you, Sergio. Good morning everyone.
Slide 7 –
UBS Group AG results (consolidated)
As usual,
my comments will compare year-on-year quarters and reference adjusted results
unless otherwise stated.
We have
adjusted for restructuring expenses of 128 million that relate to our legacy
cost reduction programs. In principle, we are not expecting to make
adjustments for restructuring expenses related to new cost initiatives. And as
you know, we expect our reported and adjusted results to gradually converge,
with restructuring cost adjustments declining to about half a billion this year
and under 200 million next year.
As of Jan
1st, we adopted IFRS 9, which substantially changes how we calculate credit
losses, and classify and measure financial assets. This has resulted in a
reduction in our IFRS equity of about 600 million and 300 million in our CET1
capital.
Our taxes
this quarter include a 13 million provision for BEAT effects, in line with the
60 million potential impact for 2018 that I referenced last quarter. We are
working to mitigate these effects.
Slide 8 –
Global Wealth Management
This is
the first quarter we've reported results for our combined Global Wealth
Management division. I will refer to US dollars, given how significant the
foreign currency translation movement was for the business, with roughly 70% of
invested assets and revenues based in dollars, as you clearly see on slide 21.
PBT was
up a very strong 14%. Our performance was high quality and broad-based, as we
saw growth in all regions and all revenue lines, another quarter of loan
growth, record mandate penetration, and positive net new money in all regions.
Operating
income rose 12%. Recurring net fee income was up 14%, benefiting from higher
invested assets and record mandate penetration, which stands at one-third of
our invested assets. It is the first time in two years that we’ve seen growth
in recurring fee income outstrip invested assets, as we have put the
cross-border effects substantially behind us.
Net
interest income improved 11%, on net interest margin and 16% higher loan
balances, partly offset by lower net interest from Group ALM, which I'll come
to later.
Transaction-based
income was 7% higher. We saw increases in all regions outside of the Americas,
which had a strong first quarter last year.
Costs
increased by 11%, partly on better revenues, but also on higher IT investments,
mostly related to migrating our international businesses onto one platform and
launching a new digital offering in the Americas, as well as higher regulatory
costs.
Despite
this, the cost/income ratio improved, in part as we are benefiting from the
changes we have made in our Americas' operating model in 2016, and we're
confident that we'll see continued efficiency improvements.
Slide 9 –
Global Wealth Management – regional performance
The
regional split on this slide reflects how Global Wealth Management is managed.
I just want to pick out a few highlights here.
We've had
record profits in the Americas with a 19% increase. Reducing our reliance on
recruiting, while focusing on retention and productivity, is clearly paying
off. We saw a 150 million annualized reduction in costs related to recruitment
loans versus a year ago. And FA compensation was up in line with revenues, and
as we have fully absorbed the increase in pay grids related to our new
operating model.
We are
also seeing results in our net new money, where same store advisors delivered a
record 11 billion. In the second quarter, we’re anticipating the typical
seasonal outflows for tax payments in the US, which were in the 3 to 4 billion
range in previous second quarters.
Our
investment in the munis space is showing promising results, as year-to-date
sales increased five-fold, along with a significant improvement in our league
table position.
APAC
profits also reached a new high, up 14%, with record transaction revenues,
continued strong mandate sales, and lending growth. We further strengthened
our #1 leadership position in Asia as measured by invested assets, where we are
50% larger than the #2 player. Not only that, we delivered higher 1-year and
5-year growth in invested assets than the next 3 competitors.
With
cross-border effects largely behind us, we see strong momentum in EMEA that
should drive QoQ growth going forward. Loans are up 16% year-on-year, net new
money was nearly 5 billion, a 4% annualized growth rate, and we had
double-digit transaction-based income growth.
We are
also pleased with our consistent performance in Switzerland, where net new
money growth was 3% on an annualized basis, and PBT was up a very strong 8% in
francs.
In short,
a very strong, well-balanced performance for our Global Wealth Management, with
positive momentum.
Slide 10
– Personal & Corporate Banking
Personal
and Corporate PBT was 393 million Swiss francs, a very solid result, including
a number of one-off effects.
We
continued to see very strong growth in recurring net fees and transaction-based
income on higher referral, FX, custody and mandate fees. Net interest income
decreased only slightly, as increased deposit revenues were more than offset by
lower GALM allocations, which again, I'll come back to later.
Other
income was about 20 million lower, as we booked a one-time gain of 20 million
related to the sale of a mortgage portfolio in first quarter '17. Credit loss
expense increased by 20 million year over year, as we had a net recovery of 7
million last year versus a build of 13 million in 1Q18. The implementation of
IFRS 9 had a minimal impact on provisions for the quarter.
As
mentioned last year, we initiated a multi-year program to digitize our Swiss
universal bank and expect to see elevated technology investments as a result,
with both revenue and cost benefits beginning to accrue in 2019.
Net new business volume growth
was very strong at 6.3%, the second best quarter since 2007.
Slide 11
– Asset Management
PBT for
Asset Management was 108 million, with the decrease from last year primarily
reflecting the sale of our fund administration business in Q4, which
contributed around 10 million of profits per quarter. Operating income
reflects higher management fees on higher average invested assets, offset by
lower performance fees.
Expenses
increased on higher personnel costs related to variable compensation
accounting.
Once
again, Asset Management recorded excellent net new money of 27 billion
excluding money markets. At 792 billion, invested assets were at the highest
level we’ve seen for a decade.
Absent
any one-time items, we expect PBT to trend around current levels for the next
few quarters.
Slide 12 –
Investment Bank
Our
Investment Bank delivered an excellent quarter, with 20% PBT growth in dollars,
a cost/income of 72%, and return on attributed equity of 25%. As with GWM,
I'll refer to dollar growth rates.
On a
regional basis, we had particularly strong performance in Asia Pacific, where
profits more than doubled.
Corporate
Client Solutions was up 22%, with strong performance across ECM, DCM, and
Advisory, where the global M&A fee pool was down.
Within
ICS, Equities increased 25%, with higher revenues across all regions and
products, but mostly in Derivatives. This doesn't include corporate
derivatives, which we report in CCS. If we were to report them in Equities,
like many of our peers do, growth would have been an even stronger 32%. FRC,
at 400 million francs, was down from a strong first quarter last year, but
recovered from the latter half of 2017.
Costs
were up 15%, mostly on higher variable comp, as well as IT investments and
regulatory expenses.
Risk-weighted
assets increased from the prior quarter, mainly as the spikes in volatility in
February led to increased market risk RWA, although from historically low
levels. Without any major volatility spikes, we expect market risk RWA to come
down.
We keep
investing for growth, while managing costs and resources prudently. To name a
few examples, we have created scope to grow our M&A business, particularly
in the US. In FX, investments into our e-trading platform last year have
benefited our clients and we have captured increased volumes. In Equities, we
continue to invest in electronic execution. Our goal remains to be the best
Investment Bank, not the biggest, by focusing on these areas where we choose to
compete, and by delivering sustainable performance over the cycle.
Slide 13
– Corporate Center
The
Corporate Center loss before tax was 380 million. Services’ PBT improved by 60
million and Group ALM posted a 222 million loss.
Non-core
and Legacy Portfolio posted a small loss of 11 million, helped by small one-off
items, and its LRD is now down to just 13 billion.
Slide 14
– Workforce management
In the
past six months, we have insourced around two thousand jobs, mostly contractors
in technology, with the primary objective of improving effectiveness and
efficiency. Overall, we've reduced our total workforce by nearly 600.
Looking
at costs more generally, we have commenced a number of programs to support
improved operating leverage. Aside from general hygiene around headcount,
consulting, recruitment and contractor spend, we are more closely aligning
Corporate Center with the business divisions they support, and I’ve created a
new team to drive ongoing Group cost management and efficiency. All of this
gives us confidence we can take our Group cost/income ratio below 75%.
Slide 15
– Corporate Center – Group ALM
Group
Asset and Liability Management results are under pressure from a combination of
market and previously highlighted regulatory factors, including the build-out
of our legal entity structure.
Revenue
lines that are fully allocated to the businesses declined 113 million
year-on-year, impacting their net interest income. This was driven by factors
we've previously highlighted, such as persistently low or negative interest
rates and higher volumes of AT1 and TLAC. In addition, a portfolio of interest
rate hedges that expired in 4Q17, contributed to lower banking book income.
We saw a
120 million year-on-year negative variance due to Treasury / OIS basis
movements, as you can see on slide 22 in the appendix. During the quarter, the
widening of this basis resulted in a roughly 40 million loss reflected in our
P&L on our portfolio of US Treasuries that are hedged by OIS instruments.
During the first quarter '17, we saw the opposite effect, leading to an 80
million gain. Banks that account for any mark-to-market gains or losses on
HQLA through OCI see a direct impact on shareholders' equity, bypassing the
P&L, especially to the extent that their HQLA portfolios are unhedged in
whole or in part.
Apart
from this effect, we also saw an incremental 85 million of losses retained in
GALM. Firstly, interest rate expense of 37 million related to FX hedging was
reclassified from accounting asymmetries to risk management net income.
Secondly, the remainder is driven by increased levels of long-term funding and
HQLA held by GALM in response to the build-out of our legal entity structure to
meet regulatory requirements, while the business divisions are consuming less.
Given
current market conditions and financial resource consumption, we expect that
our retained Group ALM negative income will be around 100 million per quarter
for the remainder of the year. We are planning and executing a number of
optimization actions with the aim of bringing us back towards the negative 50
million a quarter.
Slide 16 –
RWA 1Q18
Our
risk-weighted assets grew by 16 billion in the quarter to 254 billion.
We had
flagged increases in credit and market risk RWA related to the regulatory and
methodology changes we expected for the quarter.
As I
previously mentioned, the largest increase came from IB Equities market risk.
Of the
roughly 11 billion RWA increase we expect from regulatory changes over the next
3 quarters, about 4 billion will come in the second quarter.
Slide 17
– Capital and leverage ratios (fully applied)
Our capital
position remains very strong, with TLAC above 79 billion, and our CET1 ratios
are comfortably above the 2020 requirements.
Year-over-year,
we kept our LRD flat, while increasing CET1 capital by 1.8 billion, which drove
the improvement to a 3.76% CET1 leverage ratio.
To wrap
up, 2018 started well, the business has good momentum and we are in good shape
to deliver on our financial targets.
With
that, Sergio and I will open up for questions.
Cautionary
statement regarding forward-looking statements:
This
document contains statements that constitute “forward-looking statements,”
including but not limited to management’s outlook for UBS’s financial
performance and statements relating to the anticipated effect of transactions
and strategic initiatives on UBS’s business and future development. While these
forward-looking statements represent UBS’s judgments and expectations
concerning the matters described, a number of risks, uncertainties and other
important factors could cause actual developments and results to differ
materially from UBS’s expectations. These factors include, but are not limited
to: (i) the degree to which UBS is successful in the ongoing execution of its
strategic plans, including its cost reduction and efficiency initiatives and
its ability to manage its levels of risk-weighted assets (RWA), including to
counteract regulatory-driven increases, leverage ratio denominator, liquidity
coverage ratio and other financial resources, and the degree to which UBS is
successful in implementing changes to its businesses to meet changing market,
regulatory and other conditions; (ii) continuing low or negative interest rate
environment, developments in the macroeconomic climate and in the markets in
which UBS operates or to which it is exposed, including movements in securities
prices or liquidity, credit spreads, and currency exchange rates, and the
effects of economic conditions, market developments, and geopolitical tensions
on the financial position or creditworthiness of UBS’s clients and counterparties
as well as on client sentiment and levels of activity; (iii) changes in the
availability of capital and funding, including any changes in UBS’s credit
spreads and ratings, as well as availability and cost of funding to meet
requirements for debt eligible for total loss-absorbing capacity (TLAC); (iv)
changes in or the implementation of financial legislation and regulation in
Switzerland, the US, the UK and other financial centers that have imposed, or
resulted in, or may do so in the future, more stringent or entity-specific
capital, TLAC, leverage ratio, liquidity and funding requirements, incremental
tax requirements, additional levies, limitations on permitted activities,
constraints on remuneration, constraints on transfers of capital and liquidity
and sharing of operational costs across the Group or other measures, and the
effect these will or would have on UBS’s business activities; (v) the degree to
which UBS is successful in implementing further changes to its legal structure
to improve its resolvability and meet related regulatory requirements and the
potential need to make further changes to the legal structure or booking model
of UBS Group in response to legal and regulatory requirements, to proposals in
Switzerland and other jurisdictions for mandatory structural reform of banks or
systemically important institutions or to other external developments, and the
extent to which such changes will have the intended effects; (vi) uncertainty
as to the extent to which the Swiss Financial Market Supervisory Authority
(FINMA) will confirm limited reductions of gone concern requirements due to
measures to reduce resolvability risk; (vii) the uncertainty arising from the
timing and nature of the UK exit from the EU and the potential need to make
changes in UBS’s legal structure and operations as a result of it; (viii)
changes in UBS’s competitive position, including whether differences in
regulatory capital and other requirements among the major financial centers
will adversely affect UBS’s ability to compete in certain lines of business;
(ix) changes in the standards of conduct applicable to our businesses that may
result from new regulation or new enforcement of existing standards, including
recently enacted and proposed measures to impose new and enhanced duties when
interacting with customers and in the execution and handling of customer
transactions; (x) the liability to which UBS may be exposed, or possible
constraints or sanctions that regulatory authorities might impose on UBS, due
to litigation, contractual claims and regulatory investigations, including the
potential for disqualification from certain businesses or loss of licenses or
privileges as a result of regulatory or other governmental sanctions, as well
as the effect that litigation, regulatory and similar matters have on the
operational risk component of our RWA; (xi) the effects on UBS’s cross-border
banking business of tax or regulatory developments and of possible changes in
UBS’s policies and practices relating to this business; (xii) UBS’s ability to
retain and attract the employees necessary to generate revenues and to manage,
support and control its businesses, which may be affected by competitive
factors including differences in compensation practices; (xiii) changes in
accounting or tax standards or policies, and determinations or interpretations
affecting the recognition of gain or loss, the valuation of goodwill, the
recognition of deferred tax assets and other matters, including from changes to
US taxation under the Tax Cuts and Jobs Act; (xiv) UBS’s ability to implement
new technologies and business methods, including digital services and
technologies and ability to successfully compete with both existing and new
financial service providers, some of which may not be regulated to the same
extent; (xv) limitations on the effectiveness of UBS’s internal processes for
risk management, risk control, measurement and modeling, and of financial
models generally; (xvi) the occurrence of operational failures, such as fraud,
misconduct, unauthorized trading, financial crime, cyberattacks, and systems
failures; (xvii) restrictions on the ability of UBS Group AG to make payments
or distributions, including due to restrictions on the ability of its
subsidiaries to make loans or distributions, directly or indirectly, or, in the
case of financial difficulties, due to the exercise by FINMA or the regulators
of UBS’s operations in other countries of their broad statutory powers in
relation to protective measures, restructuring and liquidation proceedings;
(xviii) the degree to which changes in regulation, capital or legal structure,
financial results or other factors may affect UBS’s ability to maintain its
stated capital return objective; and (xix) the effect that these or other
factors or unanticipated events may have on our reputation and the additional
consequences that this may have on our business and performance. The sequence
in which the factors above are presented is not indicative of their likelihood
of occurrence or the potential magnitude of their consequences. Our business
and financial performance could be affected by other factors identified in our
past and future filings and reports, including those filed with the SEC. More
detailed information about those factors is set forth in documents furnished by
UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form
20-F for the year ended 31 December 2017. UBS is not under any obligation to
(and expressly disclaims any obligation to) update or alter its forward-looking
statements, whether as a result of new information, future events, or
otherwise.
Disclaimer:
This
document and the information contained herein are provided solely for
information purposes, and are not to be construed as a solicitation of an offer
to buy or sell any securities or other financial instruments in Switzerland,
the United States or any other jurisdiction. No investment decision relating to
securities of or relating to UBS Group AG, UBS AG or their affiliates should be
made on the basis of this document. Refer to UBS's Annual Report on Form 20-F
for the year ended 31 December 2017. No representation or warranty is made or
implied concerning, and UBS assumes no responsibility for, the accuracy, completeness,
reliability or comparability of the information contained herein relating to
third parties, which is based solely on publicly available information. UBS
undertakes no obligation to update the information contained herein.
Use
of adjusted numbers
Unless
otherwise indicated, “adjusted” figures exclude the adjustment items listed on
the previous slide, to the extent applicable, on a Group and business division
level. Adjusted results are a non-GAAP financial measure as defined by SEC
regulations. Refer to pages 7-8 of the 1Q18 report which is available in the
section "Quarterly reporting" at www.ubs.com/investors for an
overview of adjusted numbers.
If
applicable for a given adjusted KPI (i.e., adjusted return on tangible equity),
adjustment items are calculated on an after-tax basis by applying an indicative
tax rate.
Refer to page 14 of the 1Q18 report for more information.
© UBS 2018. The key symbol and UBS are
among the registered and unregistered trademarks of UBS. All rights reserved.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrants
have duly caused this report to be signed on their behalf by the undersigned,
thereunto duly authorized.
UBS
Group AG
By:
_/s/ David Kelly________________
Name: David Kelly
Title: Managing Director
By:
_/s/ Ella Campi_____________ ____
Name: Ella Campi
Title: Executive Director
UBS
AG
By:
_/s/ David Kelly________________
Name: David Kelly
Title: Managing Director
By:
_/s/ Ella Campi____________ ____
Name: Ella Campi
Title: Executive Director
Date: April 23, 2018
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