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 28, 2020
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 2020 Results of UBS
Group AG and UBS AG, and the related speaker notes, which appear immediately
following this page.
First quarter
2020 results
28
April 2020
Speeches by Sergio P. Ermotti, Group Chief Executive Officer, and Kirt Gardner, Group Chief Financial Officer
Including analyst Q&A session
Transcript.
Numbers for slides refer to the first quarter 2020 results presentation. Materials and
a webcast replay are available at www.ubs.com/investors
Sergio P.
Ermotti
Good
morning, and thank you all for joining us today. I hope you and your families
are safe and healthy. Our thoughts are with all the people affected by the
virus, as well as those fighting its spread at the frontline day-in, day-out.
All of us at UBS are humbled and inspired by their example.
I
would also like to take a moment to commemorate Marcel Ospel, our former
Chairman, and Juerg Zeltner, former member of the Group Executive Board, who
both passed away recently. Marcel laid the foundations of our firm as we know
it today. And Juerg helped building our unique wealth management franchise.
Slide
2 – 1Q20 highlights
Our
key messages for today are summarized on this slide. This quarter, I can
comfortably say that you saw UBS as its best in all dimensions.
Slide
3 – COVID-19 – Supporting our stakeholders
Starting
with our support to overcome the shocks on the economy and society we are
currently experiencing.
A
huge collective effort is needed. Unlike the financial crisis, banks can be a
part of the solution this time around, by supporting clients, as well as
working in partnership with policy makers and regulators to provide an
effective transmission mechanism for government support.
UBS
is and wants to be part of the solution. Social responsibility was already a
key part of UBS’s agenda, so supporting our employees, clients and communities
is a natural extension of what we are already doing.
Our
first priority from the very beginning has been the safety and wellbeing of our
employees. We introduced enhanced procedures to safeguard those whose presence
in our facilities is critical, and almost everyone in the firm now has the
ability to work from home.
We
know the current situation is challenging for many of our staff, so we are
providing extra support and help to balance work and extended family-care
needs.
Across
the organization, from our technology and operations teams right through to our
client-facing staff, our employees made sure that we continue to deliver for
our clients.
We
provide them with advice when they need it the most, and more. Thanks to
disciplined risk management and resource allocation going into the crisis, we
have the capacity to lend and provide liquidity to our clients, big and small.
With a 15 billion increase in loans in the quarter, we went well beyond
participation in the government relief programs.
From
the very beginning we supported and played an active role in shaping the Swiss
SME lending program, which I will cover in a minute. We have also been active
in the US, where we have nearly a third of our staff. There, we expect to make
up to 2 billion available for loans to small businesses under the federal plan.
To
help those who are fighting against the virus at the frontlines and for people
in need, UBS is contributing 30 million for global aid and local projects in
our communities. This amount was funded out of the variable compensation pool.
The
Group Executive Board and our employees around the world are donating their
time and money to coronavirus-related efforts in their communities, something
we actively support in many ways.
Crises
like this one show the true character of people and organizations. And I have
to say, our employees’ response across the entire firm has been remarkable, so
I’d like to thank all of my colleagues for their efforts.
Slide
4 – Strength and resilience
Our
operational resilience, strong financial position and successful business model
have been and continue to be a great asset, particularly in this environment.
They are the result of investments and disciplined execution of our strategy
over the years.
We
have been consistently investing over 10% of our revenues in technology for
years, building a rock-solid infrastructure and client-centric digital
capabilities. And today, those investments are really paying off.
Our
business continuity plans proved effective as we adapted and responded to the
current situation, showing a higher degree of digital agility at scale. It was
a remarkable feat. While managing the business efficiently and effectively, we
leveraged our investments and early Asia experiences helped us to rapidly scale
up flexible working capabilities globally.
Today,
90,000 people can connect from home on UBS's systems. They are able to do that
at any point in time and with access to core capabilities they need. This
includes our employees and external staff, all part of the UBS ecosystem.
We
successfully managed March’s high volumes and activity across our trading and
client platforms, including peaks of three times the normal levels, which
enabled us to gain market share and share of wallet with our clients.
We
believe many of the operational changes will be permanent, so learning from
today will make us even better tomorrow.
This
challenging environment has also brought us even closer together. Every day I
see examples of even better collaboration being driven by a sense of urgency to
help each other and to do the best for clients. Many of us at UBS are finding
that being apart can actually bring us closer together.
This
operational resilience and strong culture is complemented by our strong
financial position and clear strategic direction.
Over
the last decade we significantly reduced our risk profile, putting financial
strength, asset-gathering businesses and our universal bank at the heart of our
strategy. This, complemented by our focused investment bank.
We
have been hard at work developing our unique and complementary business
portfolio and geographic footprint, leveraging our integrated bank approach.
Our
capacity to generate capital, diversified earnings streams and attractive
business mix mean we are well equipped to handle adverse conditions.
This
makes us attractive for depositors and bondholders seeking stability. We are
very mindful of our responsibilities for those on both sides of our balance
sheet.
Slide
5 – Supporting the Swiss economy
As
a Swiss-based Group and the number one bank in Switzerland, we feel a special
responsibility to support our home market in weathering the effects of the
crisis.
We
made sure clients who use UBS for their day-to-day financial needs had
uninterrupted access to their funds, as well as our transaction capabilities
and advice. Their mobile and online activity increased significantly, with
mobile logins up nearly 40% and online onboarding nearly doubling in the
quarter. We also kept half of our branches open, maintaining ease of access
for our clients, while ensuring the highest health and safety standards.
Our
commitment to lending and providing resources went well beyond the government-backed
program. We issued one billion in new mortgages to individual clients and
provided 2 billion in net new loans to Swiss corporates. These numbers are on
top of the more than 2.5 billion we provided to over 21,000 Swiss SMEs under
the government-backed program which we swiftly implemented by mobilizing
significant resources.
I
want to be very clear on two points here. First, UBS will not make any profits
from the government-backed loans. If there are any, we will donate them
directly to relief efforts. Second, we are not pushing out risks to
taxpayers. Around two thirds of the SMEs who applied for loans under the
program did not have a credit line with UBS before. And for the remaining
third who did, the vast majority are healthy and should have no issue repaying
debt.
A good
indicator of the strength of our SME clients is that as of last Friday, they
had drawn only about a third of the credit lines we provided under the program.
Slide
6 – Helping our clients to navigate challenging markets
As
I mentioned, our employees’ professionalism and expertise in looking after our
clients’ needs, offering advice and solutions, made a big difference this
quarter. By smartly adapting to conditions and new ways of working, we were
able to deepen our relationship with many of our clients.
Our
CIO and research teams have played a critical role in delivering timely advice
to corporate, institutional and wealth clients. They have issued high-quality,
differentiating content at lightning speed across a wide range of digital
channels. For example, in March alone, our research teams published over
13,000 reports and organized over 1,500 conference calls, livestreams, webinars
and podcasts, and even held a virtual art gallery viewing.
These
efforts were highly appreciated by clients and we saw significant increases in
their engagement levels. The number of CIO interactions more than doubled in
the quarter.
Slide
7 – Drop in short-term optimism but investors remain positive long-term
Let
me give you a quick flavor for our most recent investor survey, which will be
published tomorrow.
Investors
remain optimistic over the long term, even if short-term sentiment turned more
negative, as you can see here. This is especially clear in the US, where the
impact of the crisis on the job market has been most pronounced so far.
We
are not seeing signs of investors panicking however, with only 16% of them
planning to reduce their investments. More than a third are considering
increasing their exposure over the next six months, showing there is great
potential for us to advise and interact with clients.
Slide
8 – 1Q20 net profit USD 1.6bn, +40%; 17.7% RoCET1
Now
moving on to financial results. As I said, this quarter you saw UBS at its
best, including our financial performance, and confirming our ability to
deliver in a variety of conditions.
Our
net profit increased 40% to 1.6 billion and return on CET1 reached 17.7%.
The
results were driven by strong performances across our all businesses. And very
importantly, these were achieved without the help of special items in revenues,
costs or tax. Credit losses and mark-to-market losses are part of banking and
we see them as an integral part of our results. In the current environment, the
risk of incurring operational and trading losses is high, but our credit losses
were limited, reflecting the quality of our lending book, effective hedging and
our disciplined risk-return approach over the last decade.
We
delivered attractive risk-adjusted returns in January, February, and during the
very challenging March.
Client
engagement, market conditions and our operational resilience led to high
business volumes and a 10% improvement in operating income despite increased
credit loss expenses.
Also,
we showed effective resource management across the organization.
We
remained disciplined on efficiency and effectiveness with costs consistent with
our plans leading to a 6% positive operating leverage. The cost/income ratio
stood at 72%.
We
maintained high capital ratios in line with our guidance, again without
factoring any benefits from temporary regulatory reliefs.
It
goes without saying that temporary regulatory relief measures are welcome to
help banks to facilitate credit to the economy.
Many
of the rules implemented after the financial crisis are good and we supported
them. Others proved to be less effective or counter-productive, which has
become clearer over the last couple of months. What our industry needs right
now is fixing those issues, not just through temporary relief but by permanent
changes that will allow for more planning certainty. We will continue to make
constructive suggestions to shape a stronger system.
During
Q1, our CET1 capital increased by 1.1 billion, after prudently accruing for a
2020 dividend and repurchasing 350 million worth of shares in the first half of
the quarter.
Our
strong capital, funding and liquidity position enable us to support our clients
and the economy while paying dividends. Of course we are mindful that capital
returns are an important part of our equity story. But I'm sure you all
understand it is too early to talk about what these may be for this year.
Slide
9 – Executing our 2020-2022 priorities
We
are executing on the strategic priorities we presented in January as we manage
through the crisis.
We
are making good progress on our initiatives across the firm to build a more
integrated bank, and to deliver the very best of UBS to clients. Let me pick
up on Global Wealth Management as an example.
In
January, Iqbal and Tom outlined steps to unlock the franchise’s full potential
and these are being delivered at significant speed.
We
have already completed a number of initiatives, such as aligning the Ultra High
Net Worth segment with the regions and flattening the organizational structure.
The
more integrated and client-oriented setup, faster decision-making, empowerment
and reduced complexity are making a difference already.
We
are also active in our more long-term collaboration plans. For example, we
made good progress on the build-out of our Global Family Office capabilities
and onboarding of new clients.
Also,
the partnership between Global Wealth Management and Asset Management for our
US wealth management clients investing in separately managed accounts led to 9
billion of inflows for Asset Management in the quarter. This has been a
resounding success that by far exceeded our plans.
So
summing up, I am proud of how well we delivered this quarter, not only for our
clients but also for our shareholders.
I will
now hand over to Kirt, before some final remarks.
Kirt
Gardner
Slide
9 – Executing our 2020-2022 priorities
Thank
you, Sergio. Good morning everyone.
My
remarks will focus on divisional performance as you’ve already heard the Group
highlights, and I'll also take you through some points on our credit exposure
and capital position.
Slide
10 – Global Wealth Management
Starting
with Global Wealth Management, performance was consistently excellent
throughout the quarter, with operating income at around 1.5 billion in each
month leading to the best result since the financial crisis. But it was a tale
of two halves in terms of the dynamics driving the business.
January
and February were more risk-on, partly due to a strong start to the year on
more positive client sentiment, combined with our own initiatives and client
engagement, as well as the usual seasonality. March, on the other hand,
brought a sharp switch to risk-off and a sudden need to reposition portfolios.
Coming
into the quarter, we planned to significantly increase our client
interactions. Consistent with this strategy, we’ve been extremely proactive in
engaging with clients throughout the quarter, with more than double the number
of client interactions with our CIO compared with 1Q19, as we shared tailored content
and insights and completed tens of thousands of proactive client portfolio
reviews during the quarter, with engagement further intensifying after the
crisis took hold in March.
PBT
was up 41% year-on-year, with around 400 million of pre-tax profit each month,
demonstrating the strength of the business whether in a constructive market
environment or a highly turbulent one.
Operating
income increased 14% to a new high since the financial crisis, partly
reflecting our progress on strategic growth levers throughout the quarter.
Costs increased a more modest 6%, or 4% excluding restructuring.
We
had net new money inflows of 12 billion despite 16 billion of outflows from our
deposit program, which will be P&L accretive. Net new loans were strong at
4 billion, reaching nearly 9 billion by mid-March before COVID-19-related
de-leveraging actions were taken by clients.
As
market volatility increased and asset prices dropped in March, we naturally
managed a significant increase in margin calls, although only for around 3% of
clients with a Lombard loan at the peak. We experienced a small number of
impairments and credit loss expenses were 53 million in the quarter or only 3
basis points of GWM's loan book. Our credit book went through a severe real
life stress test this quarter. Not only did we pass, but we did so while
continuing to support our clients and winning new business. All of this
highlights the high quality of our Lombard portfolio and our risk management
framework. Margin calls have returned to a more normal level in April, and our
loan-to-value remained at 50% for the overall Lombard book.
In the
midst of the turmoil, we came together as one firm. For example, the GWM/IB
collaborative efforts are now in full swing, enhancing our product shelf across
structured products and lending. We are also progressing the growth of our GFO
segment, where we saw extremely strong performance, with income up 32% across
the IB and GWM.
Slide
11 – Global Wealth Management
Recurring
fees were up 10% year-on-year and 3% sequentially. As a reminder, we bill in
arrears based on quarter-end balances in the Americas and month-end balances
everywhere else. As such, revenues did not fully reflect the 11% fall in
invested assets that we saw in Q1.
The
lower invested asset base will be a headwind in the second quarter this year.
We would expect recurring fee income to be down between 200 and 300 million
sequentially in the second quarter before management actions.
Net
interest income was up 2%, mainly driven by growth in loan revenues. This was
partly offset by lower deposit revenues on higher volumes. Looking ahead, we’d
expect further deposit margin compression from US dollar rate cuts to at least
partly offset any benefits from loan growth and effective deposit management.
Transaction-based
income was up 46% on outstanding client engagement. Increased client activity
was powered by higher advisor productivity, as well as timely thought
leadership and solutions, supported by CIO insights and organized events.
Transaction-based revenues were fairly consistent across the three months,
demonstrating the strength of our client engagement model in all types of
market environments.
And
during March, when we transitioned to working from home and interacted with our
clients remotely, we actually saw an increased level of client interactions.
We had record contact rates in Switzerland, as we offered new ways of
interacting with clients via webinars, conference calls, and virtual round
tables with CIO analysts. Outside the Americas, there were 30% more inbound
calls compared with 4Q19, 60% more in APAC and we had very positive client
feedback that our advisors were reachable at all times during the crisis. And
in the Americas, we had over a 30% year-on-year increase in calls within our
Wealth Advice Center.
Many
of our clients actively managed their investments on our advice to navigate the
current market uncertainty. That said, as we go through this crisis, we don't
necessarily expect to see a repeat of these activity levels. As trading
volumes normalize, we'd expect 2Q20 transaction-based income to decrease
sequentially.
It’s
also times like these that underscore the value of our long-term approach to
managing wealth: what we do is a long way from just investing assets. We sit
together with our clients – in person or virtually – and work through three
aspects: Liquidity, Longevity, and Legacy. That covers short-term cashflow,
sustainable wealth creation and income generation, and thinking about the
future, which can be generational wealth transfer, philanthropy or impact
investing. This framework leads to deeper client conversations and it helps
maintain a long-term, goal-oriented focus, while navigating the current
market. Our clients need and value advice, and never more so than in uncertain
times like these. In fact, our investor survey suggests that 81% of investors
with an advisor are looking for more guidance, and of those who don’t have an
advisor, 34% are more open to working with one now.
Slide
12 – Global Wealth Management
All
regions had double-digit PBT and advisor productivity growth, and positive net
new money.
In
the Americas, PBT was a record, driven by improved recurring fees on all-time
high invested asset levels at year-end and excellent transaction-based income.
Our cost/income ratio also hit an all-time low.
Asia
had its best quarter on record. Here we saw profits double, with outstanding
transaction revenues supported by very high demand for structured products.
Cost discipline also helped expenses come down slightly despite the revenue
performance, driving our cost/income ratio down to its lowest level ever.
Higher
transaction revenues and advisor productivity also drove profit growth in EMEA
and Switzerland. We furthermore saw a year-on-year increase in net mandate
sales in Switzerland.
Slide
13 – Personal & Corporate Banking (CHF)
Moving
to P&C. PBT was down 16%, as credit loss expenses of 74 million francs,
primarily on corporate loans, offset solid operating performance.
Notwithstanding
the higher CLE this quarter, P&C still delivered returns above 15%,
demonstrating the ability of this business to return well above its cost of
capital even when recording higher than usual credit losses.
Income
before credit provisions was down slightly on lower transaction-based revenues,
mainly reflecting lower fees from corporate clients, and partly due to lower
credit card-related income, where transaction volumes were down 18% in March as
a result of social distancing. For 2Q, we expect continued pressure on credit
card-related income due to reduced usage, but we’re not anticipating noteworthy
losses in this business.
NII
was stable. Recurring net fee income was the highest on record and benefitted
from the shift in business volume from GWM in 4Q19.
P&C’s
cost/income ratio improved to 58% on lower costs.
We
continue to support our individual and corporate clients with solutions and
funding, and this goes beyond the government-sponsored Swiss SME lending
program. Outside of this program, we had around 2 billion francs of net new
loans to support our corporate clients in the first quarter.
Slide
14 – Asset Management
Asset
Management had another very strong quarter with PBT up over 50% to 157 million
dollars and 11% positive operating leverage.
Operating
income was up 15%, primarily driven by net management fees, which increased by
14% on higher average invested assets, along with the continued positive
momentum of net new run rate fees since the second half of 2019. Performance
fees were up 9 million.
Net
new money was very strong at 33 billion, or 23 billion excluding money markets,
with positive contributions across all channels and very strong inflows into
traditional asset classes. And on the GWM/AM initiative on separately managed
accounts in the Americas, we had 9 billion net new money during the first
quarter and 17 billion to-date, well ahead of our plans.
“Virtual”
engagement with clients has been strong. For example, we’ve published around a
hundred strategy updates and white papers since the beginning of March to
support clients through current market conditions, and hosted more than 50
digital events.
Slide
15 – Investment Bank
The
IB had an exceptional quarter, with its best PBT since 2015.
Our
IB's capital-light business model, which is focused on advice and execution by
leveraging digital capabilities, has proven to be robust during this time of
extreme volatility and market disruption. There was a significant return of
volumes and volatility, and we were well placed to support our clients with
advice and reliable, uninterrupted access to the markets and funding, helping
them navigate extreme volatility. We’ve seen little to no disruptions in our
service to our clients and have successfully managed very high volumes across
our businesses, particularly in our trading operations, where our systems were
resilient and remained available globally.
PBT
rose significantly from a weak 1Q19 to 709 million, on 39% operating income
growth – including the CLE booked – and 12% higher costs.
Global
Markets revenues increased by 44%, mainly driven by FX, Rates and Cash
Equities, as they benefitted from increased client activity on elevated
volatility. We believe we gained market share in electronic trading in FX and
Equities, reflecting the continued investments in our platforms. Our unified
Global Markets model, with integrated Equities and FRC, allowed us to manage
risk more holistically across all asset classes. The combined set-up resulted
in faster decision making, and helped us react more nimbly to market moves.
Global
Banking revenues were up 44% as well, outperforming fee pools globally. This
was mainly due to a number of large transactions in Advisory and a strong
performance in ECM Cash. Markdowns on loans in LCM, corporate lending and real
estate finance portfolios were more than offset by gains on related hedges.
Credit
loss expenses were 122 million, mostly on energy exposures and securities
financing transactions related to mortgage REITs.
Our
cost/income ratio improved to 68%.
Slide
16 – Group Functions
Group
Functions loss before tax was 410 million.
In
Group Treasury, we saw negative 131 million, including losses from accounting
asymmetries partly offset by gains from hedge accounting ineffectiveness. The
former included negative income on own credit valuations that are largely
attributable to funding spread widening on derivatives in the Investment Bank
and Non-core and Legacy Portfolio. These asset-side funding valuation
adjustment losses are booked through P&L, but there are also liability-side
own credit-related valuation gains after tax of 934 million that are recorded
through OCI in equity.
We
also booked valuation losses of 143 million in NCL on our remaining exposure to
auction rate securities. Total auction rate securities assets were 1.4
billion, all of which are double-A-rated.
Slide
17 – IFRS 9 credit loss expense and allowances
At
the Group level, we booked credit losses of 268 million in the quarter, of
which 89 related to stage 1 and 2 and 179 related to stage 3. Now let me take
you through the moving parts.
First
of all, we updated the macroeconomic assumptions in our baseline scenario and
weightings applied to other scenarios, which drove 26 million; this within stage
1 and 2 positions.
Other
stage 1 and 2 positions added another 63 million, most of which was related to
oil and gas and securities financing exposures in the IB.
The
stage 1 and 2 CLE did not impact our CET1 capital, as they were offset against
our existing Basel III expected loss.
Stage
3 CLE of 179 million mainly related to various impairments in the IB, GWM, and
P&C. One-third was in P&C and these predominantly stem from a
deterioration in the recoveries expected from loans to corporate clients that were
already credit-impaired at year-end 2019. IB oil and gas exposures and
securities financing together added another 60 million. Lombard loans and
securities-backed lending were the primary drivers of 41 million in GWM , with
just four cases of losses above 1 million.
At
the end of the quarter, our total allowances on balance sheet were 1.3 billion.
Slide
18 – Comparing credit loss expense and allowances under IFRS and US GAAP
When
comparing credit loss expenses across banks, naturally the most important
consideration is the nature of the credit books, but accounting differences are
relevant as well. UBS reports under IFRS and has therefore been subject to
IFRS 9 since January 2018, like most non-US banks. US GAAP has a broadly
equivalent concept called Current Expected Credit Loss, or CECL, which was
introduced for the first time this quarter. Under CECL, a financial
institution recognizes each asset's lifetime expected credit loss upfront,
requiring forecasting and modelling.
Unlike
CECL, IFRS 9 bifurcates expected credit losses prior to being credit-impaired
into two stages. Stage 1 applies to all loans originated or purchased, and
reflects possible default events within the next 12 months. Stage 2 behaves
similarly to the initial stage of CECL, by capturing loans that have
experienced a significant increase in credit risk since initial recognition and
subjecting them to a lifetime expected loss allowance. In the first quarter,
in addition to our review of the quality of the credit portfolio, we updated
our scenarios to consider the deterioration of the environment in our
forecasting assumptions, while also following the guidance issued by regulators
and standard-setters.
As
an approximation to CECL, under an “all Stage 2” approach, we would have reported
around 80 million of additional credit loss expense in the quarter for a total
CLE of around 350 million, and our total allowance balance would be around 450
million higher at the end of the quarter, or around 1.7 billion.
There
are of course other differences between US GAAP and IFRS. Overall, we do not
believe that there is a net benefit or disadvantage to reporting under the one
or the other when we compare both accounting standards.
Expected
credit loss estimates are highly sensitive to economic forecasts. Considering
the recent developments, we are therefore likely to continue to see elevated
credit loss expenses over the next quarter.
Slide
19 – Loans and advances to customers
I
want to spend a couple minutes providing an update on our lending book. We
have 338 billion of loans on our balance sheet and another 90 billion
off-balance sheet. Our total allowance balance against these instruments is 26
basis points, and only 2.8 billion, or 65 basis points, are credit-impaired.
Of
the 338 billion of loans, the vast majority is secured by real estate or
securities. Our mortgage exposure is predominantly in Switzerland and mostly
owner-occupied residential mortgages, where we have no signs of stress so far.
Our exposure to commercial real estate is limited. Affordability criteria are
very strict and LTVs are generally low. Credit loss expenses of 8 million in
Q1 were 4 basis points of our mortgage book.
A
third of our on balance sheet exposure is Lombard and securities-based lending,
mostly in GWM. These are fully collateralized loans that can be cancelled
immediately if collateral quality deteriorates or margin calls are not met.
Our losses were limited at 3 basis points.
Of
the 27 billion corporate loans, nearly half is with Swiss small and
medium-sized enterprises, with the rest split between large corporates in
Switzerland and our IB’s global lending portfolio.
Two-thirds
of our off-balance sheet exposure is credit lines and loan commitments. Most
of the rest is guarantees, where historical losses have been small. These
exposures are mostly in P&C.
Slide
20 – Oil and gas exposures
Our
oil and gas net lending exposure is 1.5 billion, down significantly in the last
four years, when we made a strategic decision to reduce our financial exposure
and footprint in this sector, related to both risk and sustainability
considerations.
More
than half of our exposure is with investment grade-rated counterparties. And
about half of our total exposure is to the integrated and midstream segments,
which we would consider to be less susceptible to prolonged periods of low oil
prices. Under a scenario where WTI oil prices are 10 dollars, we would expect
around 250 million of losses over the next two years.
Slide
21 – Investment Bank loan underwriting commitments
We
had 11 billion of loan underwriting commitments in our IB. As of the end of
last week, we have syndicated 3.5 billion, of which 3 billion sub-investment
grade, reducing our outstanding loan underwriting commitments to 7.3 billion.
Of this amount, 2.9 [edit: 2.8] billion is investment-grade. The
remaining 4.5 billion includes a few large transactions with good credit
fundamentals and an overall diverse set of exposures.
Slide
22 – Corporate lending and credit line utilization
As
Sergio has already said, we have been and will continue to support our clients
with credit and liquidity. During the quarter, we extended 5 billion of loans
and credit lines across P&C and the IB. Through April 22nd, we saw an
incremental 1 billion in draw-downs.
In an
unlikely scenario where our clients draw down 100% of their facilities, we
would see a 9 billion rise in RWA, or a manageable 40 basis point decrease in
our CET1 ratio.
Slide
23 – Risk-weighted assets
Risk-weighted
assets rose by 10% or 27 billion during the quarter, with increases from both
credit and market risk, the majority of which related to supporting our clients
as they confronted the implications of COVID-19, along with the impact of
extreme market volatility.
During
the quarter, we had an increase of 1.8 billion from the full implementation of
SA-CCR.
More
than half of the 18 billion higher credit risk RWA was driven by new business
and draws on existing credit facilities. We also saw a rise in derivative
exposures as a result of higher market volatility and client activity, as well
as more securities financing transactions.
Higher
average regulatory and stressed VaR from unprecedented and sharp market moves
across asset classes drove 10 billion higher market risk RWA from extremely low
levels exiting 4Q19. Given that higher market volatility is likely to persist
in 2Q, and considering the 3-month window for regulatory VaR, we expect market
risk RWA to rise further in the second quarter. Importantly, this does not
imply any actual increase in our market risk, but rather is driven by the
technical nature of regulatory and stressed VaR.
Our
RWA did not benefit from any regulatory-granted exemptions or relief during the
quarter.
While
there is some potential to hedge our regulatory and stressed VaR, we always
assess the cost of hedging against our cost of capital, along with any risk
management considerations in determining appropriate hedging actions.
Slide
24 – Capital and leverage ratios
Our
capital position remains strong, with capital ratios consistent with our
guidance and comfortably above regulatory requirements. Again, that's without
taking into account any of FINMA's relief measures.
Our
CET1 capital ratio was 12.8%. With higher expected market risk RWA that I just
referenced and the deployment of further balance sheet to support our clients,
our CET1 ratio could be slightly below the lower end of our guidance in the
second quarter.
Excluding
the temporary COVID-19 related FINMA exemption for sight deposits at central
banks, our CET1 leverage ratio was 3.8%.
Early
in the quarter, we effectively managed our liquidity, allowing us to weather
the most challenging periods of stress. In particular, we were able to avoid any
term issuance until the markets returned to more attractive pricing levels.
Our liquidity and overall financial position continue to be very strong.
Now back
to Sergio for closing remarks.
Sergio P.
Ermotti
Slide
25 – Deploying our strengths
Thank
you Kirt. Let me sum up here before moving to questions.
The
very strong quarter is the result of years of disciplined strategy execution,
responsible risk management and sustained investments.
As
we look ahead, of course nobody is under the illusion that things are going to
be easy.
The
range of potential outcomes of this crisis remains very wide. We entered these
turbulent times in a position of strength. UBS's financial position is strong
and our business model is fundamentally resilient, built around our integrated
business model in which each business has a vital role for the success of the
others.
Our
diversification and risk profile is different from that of many other banks and
I am convinced that we are well-equipped, probably better than most, to deal
with adverse scenarios. We will continue to execute on our strategic
priorities, serving clients and – last but not least – delivering for our
shareholders.
With
that, let's open up for questions.
Analyst
Q&A (CEO and CFO)
Kian
Abouhoussein, JP Morgan
Yes, thank you for taking my question. The first question is related to – first
of all, thank you very much for the guidance on recurring fees in the wealth
management business – can you also comment on the NII: How you see the NII
developing considering the lower rates? That’s the first question. And the
second question is: On your macro-assumptions for IFRS 9, what have you
assumed? And in that context, if I look at your report, the larger report, you
talk about the ECL and the fact that you are covering at a lower level than
100%, and you have discussed that a level of 100% of coverage would be more
like 600 million USD impact, rather than more like the 400 that you have taken
– so can you just discuss how we square the macro assumption as well as your
ECL allowances, so we can get a better picture around provisioning outlook?
Kirt
Gardner
Kian, thank you, thank you for both your questions. In terms of net interest
income, what I highlighted is that we do expect to see the impact of the rate
cuts from the US show up in the second quarter – that would represent headwinds
overall to net interest income in our wealth management business, and also we
do see continued further headwinds in terms of where rates are currently for
Swiss francs as well as euros for our P&C business. You know, having said
that we haven’t currently provided specific guidance on what we expect the
quarter-on-quarter impact to be.
Just
on your question about IFRS 9, as we indicated in our report of course, we went
through an exercise to update our scenarios – and we did a couple of things,
firstly, our base line scenario as you would expect now reflects a higher
unemployment and overall GDP contraction. In addition to that, we felt that our
severely adverse, or more adverse, scenario was appropriate for the first
quarter, although we currently are going through a revision of that scenario as
we enter the second quarter. The other thing that we did is, we eliminated the
upside scenario and we also eliminated the mild depression scenario – so we
ended up with a 70%-30% mix between base line and also our adverse scenario.
And that resulted in the stage 1 and stage 2 that you saw that we booked for
the quarter.
Now
in terms of your question around ECL, I think what we highlighted is, just
given the fact that our Basel III expected loss is higher than our current
total balance for ECL from stage 1 and 2, we don’t see any impact in our CET1
capital from the P&L that we booked for our credit loss expense. I think
that’s probably what you were reading through in terms of the reference, and
the impact of what we booked versus our capital overall.
Sergio
Ermotti
Maybe
just to add, on NII I would just probably want to add that in addition to what
Kirt said based on the headwinds, partially we will mitigate those headwinds
because of the credit we deploy out – are also creating some counter-effects,
and which, as I said, will out-mitigate or manage that situation. So that’s
probably…
Kian
Abouhoussein, JP Morgan
If
I can just add one follow up on the economic scenario base line and more the
severe and mild downside, can you just quantify them? Because I don’t find
anywhere input data in terms of real GDP assumptions or unemployment – if you
could just give us that for this year, next year.
Kirt
Gardner
Yes,
Kian, we didn’t provide any specific details on the assumptions for those
scenarios – I guess I would only comment in terms of the base line as I
mentioned, it was a deterioration from our assumptions at the end of the fourth
quarter, as you would expect, and in terms of our severe global crisis
scenario, I would only mention that if you look at those factors, they tend to
be more adverse than what you see in the severely adverse CCAR scenario, what you
see in the ECB ICAP scenario and so on – it does encompass a very significant
narrative around global downturn. And I think, as with all our peers we’re
going to continue to update our scenarios as we see the overall crisis evolve.
Kian
Abouhoussein, JP Morgan
Okay,
thank you.
Anke
Reingen, RBC
Yes,
thank you very much. I had two questions. The first is on capital. You
indicated that the capital ratio might fall in the second quarter below your
target range – but I just wonder if you were to apply the temporary leave in
the capital, would that potentially be an offset and an indication about the
dividend accrual for financial year 2020? And then just a follow up question on
the cost of risk: You’ve been quite cautious in your comments. Is it fair to
assume that Q2 could be higher than the P&L charge in Q1? But could you be
more specific in how much buffer you have in terms of the hit against capital?
Thank you very much.
Kirt
Gardner
Yes,
Anke, thank you for your questions. In terms of capital, just to be clear, what
I indicated, as I said, that we could fall slightly below our guidance range –
in the lower end of our guidance range on CET1 capital, is 12.7%. Now
importantly, if you look at the removal of the counter-cyclical buffer, which
was granted by FINMA as well as other regulators, that puts our total
requirement at 9.7%. So that still leaves us with a very, very significant
buffer to our actual requirement. Now also importantly, while we have a removal
of the buffer for our requirement, it doesn’t help the ratio at all. So there’s
nothing right now in terms of relief that’s been made available that we’ve
availed ourselves of, that has made any impact on our current CET1 capital
ratio that we reported at 12.8%.
Sergio
Ermotti
In
respect of dividend, Anke, I don’t think I have much more to say. I think at
this stage we can only tell you that I believe it’s both prudent not to talk
about it, but it’s also prudent to take in consideration that, as I mentioned
before, capital returns is part of our equity story – so we are accruing for a
dividend in 2020, but it’s very premature to talk about levels, and any other
topic around this, other than saying that we are well aware that there are, we
have to balance capital solidity and the ability to respond to the crisis but
also to continue to have an attractive capital return story.
Kirt
Gardner
And
maybe Anke, just to add to Sergio’s comments that in terms of our 2020
dividend, for the half that has been postponed, we continue to maintain a
special reserve for the payment of that second half, that has not yet been
accreted back to our capital, and that’s just as consistent with our current
expectation that we will pay that. Now on your question on the risk side…
Sergio
Ermotti
On
the risk side, I think that the question is on the comments we made on risk is
that you know, the elevated levels are elevated in terms of our own historical
standards, and you know, I consider the first quarter, although it’s a strong
performance in relative terms to peers, an elevated level. So it’s difficult to
do, you know, a forecast right now on how much they will be. We have been
trying to show scenarios, and of course we need to adapt any major negative
developments in the macro-economic assumptions. As Kirt pointed out, you know,
very coherent with the way we manage risk and risk reward, you can assume that
our existing underlying macro-assumptions are quite severe. And but now, we
don’t know exactly what the next round of economist outlook is going to be. We
take external views. It is not only our UBS internal macro-economic view that
we take in consideration, so but you know, even if we stress our portfolio,
it’s very difficult to see any meaningful result out of this crisis.
Anke
Reingen, RBC
Thank
you very much.
Jeremy
Sigee, Exane BNP Paribas
Morning,
thank you. Just a couple of clarifications please. First one is on the CET1 and
other related discussion that we’ve already been having. You mentioned that you
expect further expansion in market risk RWAs from the sort of averaging effect
of that. Just wondered if you could put some scale around that. Are we talking
about a similar expansion to what we saw in Q1 or something less than that? And
linked to that, are there any other movements that you kind of expect already
in RWAs, either from technical calibration effects or from rule changes or
anything. Is there any moving parts that you could explain to us?
And
then my second question is really just a clarification: You said that you’re
prudently accruing a dividend for 2020. Is that dividend in line with your
existing policy of small year-on-year increases in the dividend?
Sergio
Ermotti
As
I said, it’s premature. I understand, Jeremy, the need of clarity, but you know
there is not a lot of things I can say around the dividend. You can only assume
that we are accruing a dividend which is aligned with the current market
conditions and the need I mentioned before. So hopefully we will be able to
give more guidance and clarity on dividends, I suppose after the summer. I
think before then, I don’t think it’s appropriate and it’s not in the interest
of anybody to talk too much about this topic. So we keep our focus on execution
and delivering capital and generation, and then the issue will be resolved. It
will resolve itself.
Kirt
Gardner
Yes,
Jeremy, in terms of your question on RWA, you know first just to highlight of
course, we were coming off of extremely low market risk RWA as of the end of
the fourth quarter – you see that, just 7 billion, and so therefore when you
look at the increase, I think it’s a bit amplified because of the low base. But
nevertheless, also as I highlighted, we just look at the technical nature of
how reg Var and stress Var impacts our market risk RWA, and knowing the volatility,
remains at higher levels. And you think about the three-month reg Var window
that we’re certainly in, and continues to extend as we see higher levels of
volatility. All of that suggests that we’re going to see a further increase in
the second quarter. I would only say as well, we would expect, and we’re making
of course capacity available to continue to support our clients, and that is
both through some level of potential drawdowns for existing facilities, but
also we’re still open for new business and we see very, very attractive
opportunities to continue to deploy capital on given the fact that we still
have attractive buffers, we’re going to do so and we’re going to support our
clients and our shareholders, as we go through the second quarter.
Now
overall, when I look at both sides of that equation, what I mentioned is that
we would expect to be right now possibly slightly below our 12.7%, that is the
range that we’ve guided on. Away from that, there’s no additional regulatory or
other related increases – what we mentioned as well is during the quarter, we
fully implemented SA-CCR, so we no longer have any phase ins for SA-CCR, and
over the past couple of years we’ve been diligently implementing basically what
has been the overall progress towards Basel III, and there’s no further such
increases that we anticipate for this year.
Jeremy
Sigee, Exane BNP Paribas
And
just as you think about, as you say, you’ve got very strong buffers above your
regulatory minimums, and there are opportunities to deploy balance sheet –
what’s your sort of levels of comfort? You know, you could easily go down to
say, 12%, and we would still look at that and say that’s still a pretty decent
ratio – what’s your tolerance for lower ratios in this environment?
Sergio
Ermotti
Yeah
well, Jeremy, I think that we are mindful that the buffers are there to be
used, but also as I mentioned before, it’s very important that those buffers
are used also with a time frame in mind. So it would not be really wise to go
out and use the buffer immediately. We don’t know how the crisis will play out.
We need to be careful in managing any dimension. You know, we believe that we
have enough capital generation and ability to serve clients and support the
economy, without going deep into using the buffers, so I don’t think that I
want to speculate about what is the level that we will be down. But of course,
everything which has a 12 in front I believe is both in absolute and relative
terms, very important – because I think that we can comfortably say that, if
you look at our CET1 ratio right now, which is absence of any kind of
concessions, on a relative basis, is extremely strong. And of course, capital
strength, as the largest wealth manager in the world, is an absolute must. And
we also have a duty, as I mentioned before, to protect our clients, being the
ones who have on-balance sheet assets with us, but also the ones who have
liabilities with us. So we are always very mindful to make sure that the full
picture of how we look at our stakeholders and clients, bond holders, is fully
reflected in the way we manage risk and capital.
Jeremy
Sigee, Exane BNP Paribas
Very
good. Thank you.
Jon
Peace, Credit Suisse
Morning,
my first question is, you’ve talked about some of the revenue headwinds going
into the second quarter. But would you say in this environment that activity is
still elevated across the bank, maybe particularly in the investment bank,
compared with a normal April?
And
my second question is on the French tax appeal verdict: I think we’d originally
been hoping for an update on that, perhaps around September-October. Do you
think in this current environment that’s likely to be delayed? Do you have any
visibility there? Thank you.
Sergio
Ermotti
So
I think it’s very difficult to talk about the environment – but you know, as
Kirt mentioned in his remarks, we all know that the first quarter was very
active with two different kind of connotations: the first half and the second
half. In the second half, we were very profitable, also including loan loss
provisions and marks down. But of course with a different nature of
profitability and levels. I would say that the environment we see so far is
similar to the March environment than it is to January and February. But it is
way too early to call for any trends, you know, I am referring to the IB
environment. Of course, Kirt already extensively spoke about wealth management
and what it means. So of course we need to understand that there is also some
kind of seasonality coming into the second quarter – although nowadays, I would
say the last 12 months or 20 or so, talking about seasonality is a little bit
difficult but of course we have some seasonality factors, so it’s premature,
but I would say that so far, you know, we are not seeing a dramatic change of the
environment compared to the way March went.
On
the French tax, we were, you know, other than more updates, we were expecting
any outcome probably by September, which we all know now that we’ll find out on
June 2 when the trial was supposed to start on June 2. Now what we know is that
on June 2 we will find out the new date of the trial. So till June 2 we have no
update and then based on that you can assume that still we believe that from
the day of the beginning of the trial, you have to put few months, three months
maybe, I don’t know, two, three, four months, time frame between the end of the
trial and the verdict of the second round – so more information, you know, will
come out during June, I’m sure you’re going to see publicly, and we will be able,
if anything, to make comments for Q2 results.
Jon
Peace, Credit Suisse
Great,
thank you.
Stefan
Stalmann, Autonomous Research
Good
morning, gentlemen, I have two questions please. The first one, on your
sensitivity of net interest income to rising interest rates – which you
helpfully disclose every quarter. That has actually doubled, compared to
year-end to the upside, but has not changed to the downside of falling rates.
Could you maybe talk a little bit about what has triggered this much higher upside
sensitivity? Is it positioning? Or is it just a different way of estimating the
impact of a given move.
And
the second question goes back to IFRS 9 and expected losses – I think the
disclosure is very helpful about what the provisioning impact is, by moving to
a severe worst scenario. But I’m just surprised how small that difference
actually is. It turns out you only need a 170 million extra provisions to move
to an adverse scenario – which according to your annual report is something
like 6-9% GDP contraction. I find that quite counter-intuitive. Maybe you could
talk a little bit about how the additional provisions and that kind of move
would be so low in stage 2.
And
maybe, in that context, could you maybe roughly guide what you would expect to
see in stage 3 assets, in stage 3 provisions, if you move into your severe
downside scenario under IFRS 9. Thank you.
Kirt
Gardner
Yes,
Stefan, in terms of your first question, if you look at what’s taken place with
interest rates now that the US rates have cut down close to zero, what you see
now when we model the upside, particularly since a lot of our assets are very
short term, is it the pickup on the upside now that we’ve had such compression
just tends to be much more favourable, particularly given some of the model
data assumptions overall on both the deposit side as well as what we would
expect in terms of the asset-pricing side, and all of that together contributes
to a more significant overall pickup with the 100 basis point move. Now on the
downside, the reason why that’s far less than the upside, is again because of
the compression – and when you start to model into negative rates and you
assume floors particularly on your asset margins, your asset margins actually
tend to stay fairly firm if you see any further downturn in rates. And we’ve
seen that very much in terms of how our NII has behaved in Switzerland with the
negative rates.
Now
overall, in IFRS 9, the reason when we model the assumption of what happens if
we move from 70/30 to say a 100% with our severe scenario, we model that on the
interesting mix between stage 1 and stage 2. And so because you still see a
very high percentage of our loans overall that remain in stage 1, but we don’t
include any significant increase in credit risk, then the impact overall is the
one that we’ve indicated, which is somewhat over a 100 million, but it’s not
that severe overall beyond that, just as I said because at the same time we
don’t include any modelling of further migration from stage 1 to stage 2. Now
regarding your question on modelling the impact on impairments, I mean that’s
not something that currently we’ve disclosed, as you would expect. We
continuously run our stress models, and we look at the full impact of our
credit exposure as we think about the adequacy of our capital buffers and how
we manage them.
Stefan
Stalmann, Autonomous Research
Thank
you very much.
Andrew
Coombs, Citi
Good
morning, thank you for your comments and I’ll commend you as well on your
commitments to support the COVID relief projects. If I could just follow up
with a couple of more on the reserve build in interaction with capital: The
first question, we’re typically looking at the disclosure you provided on page
77 of the report, where you say that if you did apply life-time of expected
credit losses on all stage 1 and 2 exposures, ECL would have climbed from 429
to 900 – just trying to square the circle with how that compares to the 18
million incremental you guided to on slide 18, if you were to adopt CECL.
Because the incremental numbers in the report seem somewhat higher.
So
perhaps you could just clarify there. And then the second question would just
be on the remarks about the capital expected loss under the IRRB model less the
existing provision – if I look at that, it did decline slightly from 495 to
429, but it declined by less than the loss you actually booked through the P&L.
So trying to understand what some moving parts there and does this mean you can
take up to another 430 million provisions without it essentially impacting your
capital position? Thank you.
Kirt
Gardner
Yes,
Andrew, so maybe it would be helpful if you go to slide 18 of the presentation
– and what we do there is that we model what our provision in our allowance
balance would have been under CECL. And importantly, what you see is the
starting point is coming into the quarter – we would have already had a total
allowance balance of 1.4 billion, which already would have been 372 million
higher than our balance would have been under IFRS 9, or was actually under
IFRS 9. So there we would have already in the process of adopting CECL, we
would have already booked the 372 million increase directly to equity, similar
to when we adopted IFRS 9, and similar to what you saw with the US banks, and
also the Swiss bank that report on the US GAAP. So then, the impact during the
quarter was an incremental 80 million in stage 2 on top of what we would have
booked under IFRS 9. And so that then takes the total increase, you see, our
increase goes up to 429 and then we would have seen the 80 million on top of
the 372 to get to 450 million under CECL. So that results in the total of 890
million in allowance balances of the end of the quarter. I hope that’s clear.
Andrew
Coombs, Citi
That
is clear. Sorry, I missed the step-up at the end 2019 there. I guess just to
round out this whole debate, essentially kitchen sink (inaudible)… If you were
to look at kitchen sink sensitivity. You talk about ECL allowance to move to,
two parts to your equation. One is if you were essentially expecting to do the
life-time credit losses in all stage 1 and 2, which goes from 429 to 900, so
470 incremental, and on top of that you talk about if it were to move to a
severe downside scenario, it would be an incremental 170. If you were to move
to a 100% severe scenario and move to a life-time of expected credit losses, so
not the best case if you were to apply that sensitivity, you would be looking
at the 470 plus the 170 plus an incremental number, because you would be taking
on the life-time expected credit losses under a whole severe 100% scenario.
Does that make sense?
Kirt
Gardner
Yes,
Andrew. We run those models, and you’re right, our total allowance balance
would have further increased if we would apply a 100% of the severe scenario
plus the full CECL impact. And you can assume that we would have been nicely
above a billion. And we just run those scenarios so we understand the
sensitivity in the reporting, what would happen and what if – but of course
it’s not relevant because we’ll report under IFRS 9 going forward. (Sergio
Ermotti: And it goes against equity). And well, at that point the question is
how much of that would have gone against equity, which kinds of gets into your
second question. And you can’t exactly look at dollar for dollar in terms of
what we booked, because the structure of our Basel III expected loss sits in
capital, that balance has an assumption across different parts of the portfolio
– so depending on what you booked for stage 1 or stage 2, it would determine on
whether a portion of that goes to equity or a portion does not, is offset. So
it’s a little bit more complicated and nuanced in terms of the actual impact.
We can get back to you and just reconcile what took place during the first
quarter.
Andrew
Coombs, Citi
No,
I appreciate that, we’re all having to adapt to the complexity of IFRS 9. But
thank you, that was very helpful.
Benjamin
Goy, Deutsche Bank
Yes,
hi, good morning, two questions please. First, on your client survey, sounds
relatively constructive – do you think you can keep your fee margin more stable
this time unlike in previous crises? And then secondly, on the 183 million of
write-downs, that were fully offset by hedges – I’m just wondering is that your
general hedging policy or could you act swiftly as the pandemic unfolded? Thank
you.
Sergio
Ermotti
So,
I mean, first of all I think that if you look from an historical standpoint of
view, when you look at margin perfection, I don’t know if you refer back to the
financial crisis, where we had more of an idiosyncratic situation, of course
you know, protecting margin there was a function of outflows – but in general I
can say that in an environment like this one, we can price-advise, we can get
margins up on transaction business. So I don’t think that there is an issue of
margins as you can see it is all about client activity levels and the way we
engage with them, if anything in many cases, we are able to, you know, price
our services while staying competitive in a way that is recognised by the
client as being added value.
In
respect of our hedging strategy, it is very much what I said. It is not that we
were particularly quick in reacting to the pandemic – it’s part of the way we
manage risk across the cycle. So I remember that means that maybe there are
quarters in the past in which we could have seen a little bit of a better
momentum in NII and any other dimension of the business, but we always say that
what matters for us is risk-adjusted returns. And return on deployed capital.
And looking at also our cost base versus the return on risk-weighted assets.
And in this quarter, you saw this being fully deployed. So no, we were not
quicker or smarter during the crisis. We were coherent over the cycle, entering
into the crisis with the same discipline we had over the last decade.
Benjamin
Goy, Deutsche Bank
Very
clear, thank you.
Cautionary
statement regarding forward-looking statements: This
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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. The outbreak of COVID-19 and the measures
being taken globally to reduce the peak of the resulting pandemic will likely
have a significant adverse effect on global economic activity, including in
China, the United States and Europe, and an adverse effect on the credit
profile of some of our clients and other market participants, which may result
in an increase in expected credit loss expense and credit impairments. The
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denominator (LRD), liquidity coverage ratio and other financial resources,
including changes in RWA assets and liabilities arising from higher market
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to which UBS is successful in implementing changes to its businesses to meet
changing market, regulatory and other conditions; (iii) the continuing low or
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which such changes will have the intended effects; (viii) UBS’s ability to
maintain and improve its systems and controls for the detection and prevention
of money laundering and compliance with sanctions to meet evolving regulatory
requirements and expectations, in particular in the US; (ix) the uncertainty
arising from the UK’s exit from the EU; (x) 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; (xi) changes in the standards
of conduct applicable to our businesses that may result from new regulations 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; (xii) 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, potentially large fines or monetary penalties, or the 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 as well as the amount
of capital available for return to shareholders; (xiii) 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; (xiv) 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; (xv) 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; (xvi) 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; (xvii) limitations on
the effectiveness of UBS’s internal processes for risk management, risk
control, measurement and modeling, and of financial models generally; (xviii)
the occurrence of operational failures, such as fraud, misconduct, unauthorized
trading, financial crime, cyberattacks and systems failures, the risk of which
is increased while COVID-19 control measures require large portions of the
staff of both UBS and its service providers to work remotely; (xix)
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; (xx) 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 (xxi) 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 2019. 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.© UBS 2020. The key symbol and UBS are among the registered and
unregistered trademarks of UBS. All rights reserved
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. 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.
Non-GAAP
Financial Measures: In addition to reporting
results in accordance with International Financial Reporting Standards (IFRS),
UBS reports adjusted results that exclude items that management believes are
not representative of the underlying performance of its businesses. Such
adjusted results are non-GAAP financial measures as defined by US Securities
and Exchange Commission (SEC) regulations and may be Alternative Performance
Measures as defined in the SIX Exchange Directive on Alternative Performance
Measures or under the guidelines published the European Securities Market
Authority (ESMA). Please refer to pages 7-9 of UBS's Quarterly Report for the
fourth quarter of 2019 and to its most recent Annual Report for a
reconciliation of adjusted performance measures to reported results under IFRS
and for definitions of adjusted performance measures and other alternative
performance measures.
©
UBS 2020. 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 28,
2020
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