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: October 20,
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 registrants file 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 Third Quarter 2020 Results of UBS Group AG and UBS AG,
and the related speaker notes and Q&A session, which appear immediately
following this page.
Third quarter
2020 results
20
October 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 third quarter 2020 results presentation. Materials and
a webcast replay are available at www.ubs.com/investors
Sergio P.
Ermotti
Slide
2 – 3Q20 highlights
Thank-you
Martin, and good morning everyone.
We
were all hoping to be in a better place on COVID by now. Instead, the world is
still facing a difficult situation, with Europe confronted with a new wave of
infections.
I
hope you and your families remain safe.
On
our side, we remain committed to supporting our employees, clients and the
communities in which we operate.
In
this context, clients continue to turn to UBS as a stable and trustworthy
custodian of their financial assets, for advice, the quality and breadth of our
products, and for our capacity to continue to lend.
Our
operational resilience and financial strength are critical to enable us to
deliver for them, while we continue to execute against our strategic
priorities.
As
for the third quarter, I think the numbers speak for themselves.
Pre-tax
profit was the highest in a decade, net profit doubled from last year, and PBT
adjusted for items of a one-off nature rose by over 40% compared to the third
quarter of 2019.
Our
balance sheet remains strong, with capital ratios above our guidance even after
establishing a capital reserve for potential future buybacks worth 50 basis
points on our CET1 ratio.
Slide
3 – 9M20: Driving positive operating leverage
We’ve
had good momentum all year, with strong performance across the first two
months, as well as since the pandemic began to dislocate markets in March.
For
the three quarters to date, return on CET1 reached 17.6%, helped by increased
client activity, intense client engagement, and our readiness and capacity to
deploy balance sheet.
This
was achieved despite having to absorb COVID-related headwinds, such as lower
credit card revenues in Switzerland, higher credit provisions, and lower dollar
interest rates.
Positive
operating leverage was supported by disciplined cost management, which contributed
to a 6 percentage point decrease in the cost-to-income ratio to 73%, the lowest
level since 2006.
Slide
4 – Leveraging the successful business model and capabilities built over the
years
The
way we have been able to manage in this environment highlights our strength and
is a testament to our winning strategy and business model, and the quality of
our people and infrastructure. It demonstrates once again our ability to
deliver in all market conditions, and is the result of sustained front-to-back
investments over the years.
Our
revenues are well diversified across segments and regions, providing earnings
stability and enabling us to capture opportunities where they arise.
Our
business mix is highly capital-accretive, also thanks to our industry-leading
returns on risk-weighted assets. All of this reinforces our balance sheet for
all seasons and our ability to build out our loss-absorbing capacity.
Slide
5 – Delivering for our clients and driving growth
The
pandemic and its economic consequences are leading many people to fundamentally
rethink their financial plans and positions. This has translated into higher
client activity, as you can see on this slide.
The
continued progress in bringing together the whole firm with an increasingly
integrated offering is also enabling us to develop deeper relationships, which
helped to support these results.
Our
approach is rewarded by our clients. They are choosing to invest more with us,
to transact more through us, and borrow more from us.
Slide
6 –APAC – Leveraging the power of UBS’s integrated model
UBS’s
commitment to APAC and its clients has spanned more than a half a century, and
building out our competitive advantage has been a strategic priority.
We
continue to be a premium brand for clients, and for talent, with a
market-leading, integrated offering spanning wealth and asset management, as
well as investment banking.
We have
shown we know how to build and grow a successful franchise in Asia, even when,
as we anticipated, growth has become more volatile.
In
this new paradigm, we continue to balance profitable growth with investments
for the future.
This
year’s performance in APAC is a validation of our strategy, with PBT nearly
doubling, and with APAC being the largest contributor to the Group's earnings
so far this year.
Slide
7 – Americas – Cross-divisional collaboration driving growth
You
cannot be the leading wealth manager without a meaningful presence in the
world’s largest market, the Americas.
There,
across our three businesses, we generated 1.7 billion in profits through the
first 9 months of the year, up 42% year-on-year.
In
addition, the deferred tax assets we have in the US mean that pre-tax profits
accrete into CET1 capital one for one, a unique feature for UBS.
In
the third quarter, the Americas was the largest contributor to the Group’s
earnings, generating three-quarters of a billion in PBT, double its 3Q
performance from a year ago.
Much
of this success can be attributed to collaborative efforts across the
divisions, including in capital markets for middle-market institutional clients
led by the IB and GWM, and the successful partnership between Asset Management
and GWM to expand their separately managed account offerings.
Our
full commitment to the Americas is paying off and we expect cross-division
collaboration for the benefit of clients to continue to be a distinguishing
factor for us in the region.
Slide
8 – Delivering competitive returns
Our
results are not only strong in absolute levels, but, as you can see on this
slide, also relative to the best of our peer group, in particular when you
include the full cost of credit that has to be factored in when comparing
performance over any cycle.
Slide
9 – Committed to attractive capital returns
Since
2011, without raising new equity, we have generated 33 billion in capital, of
which we delivered or accrued 22 billion for shareholder returns, including 18
billion in cash dividends.
The
remaining 11 billion was retained to meet higher regulatory requirements and
underpin growth.
Today,
we reconfirm our plans to pay out the second installment of the 2019 cash
dividend, with an EGM scheduled for next month.
Going
forward, we remain committed to paying out any excess capital, and, as
communicated in July, for 2020 and beyond, we plan to adjust the mix between
cash dividends and buybacks.
In
line with this, we have been accruing at about half the rate of the 2019
full-year dividend.
We
have also built a one and a half billion dollar reserve for potential future
buybacks, on which our regulator has been informed and raised no objections.
This amount has been carved out of CET1 capital to reflect what we would
otherwise have used to buy back shares this year.
We
may make further accruals for buybacks in the fourth quarter, and we are
hopeful to be allowed to resume buybacks in 2021.
Slide
10 – UBS Investor Sentiment Survey
Turning
to investor sentiment, our most recent survey, which we will publish tomorrow,
tells us short-term optimism improved slightly this quarter.
Unsurprisingly,
Covid continues to be the number one concern globally, followed by politics.
The US election remains a key catalyst in the short term.
Slide
11 – Building on our strengths and momentum in a rapidly evolving environment
With
respect to clients and our operating model, Covid has accelerated a number of
pre-existing trends, and we are responding and adapting to the new environment.
We
are seeing increased digital usage among clients, and we are accelerating to
meet their needs today and tomorrow.
Sustainable
investing remains top of our clients’ minds, boosted by outperformance year to
date and a growing emphasis on tailored investments. It’s an area where UBS
has been a leader for years and we continue to set the pace.
In
the quarter, we became the first major global financial institution to prefer
sustainable over traditional investments for Wealth Management clients
investing globally. We also rolled out Climate Aware Asset Management
strategies across additional asset classes.
And
lastly, with interest rates across developed markets likely to stay low or
negative for longer, our clients need our advice on investing in an environment
where regular savings return less than the rate of inflation.
To
support our clients in their search for sustainable risk-adjusted returns,
Private Markets offer interesting opportunities and we are investing to further
enhance our capabilities. In addition, the smart use of leverage can help to
enhance returns.
Again,
the banking industry is changing rapidly, and there is no room for complacency.
We have to make further strides to become more efficient and effective.
Adapting
is something we’re good at.
For
example, we are constantly reassessing our front-to-back processes and what the
bank and the workplace of the future will look like, along with the
implications for our real estate footprint.
In
addition, we are reaping the benefits from being ahead of the curve on cloud
migration, which is propelling us forward on our digital journey.
To
summarize: UBS is stronger than ever: strategically, financially and
operationally. We remain vigilant in the face of risks in the market and
potential weaknesses in the broader economy.
In
the face of these uncertainties, we are focused on delivering for clients,
executing on our strategic priorities, and building on our momentum to prepare
the firm for the future.
With
this, I will hand over to Kirt to take you through our third quarter results.
Kirt Gardner
Slide
12 – 3Q20: Driving positive operating leverage
Thank
you, Sergio. Good morning everyone.
Net
profit for the quarter was 2.1 billion, translating into a 21.9% return on CET1
capital.
On
a reported basis, PBT was 2.6 billion, with around 60 million net year-on-year
benefit from foreign exchange moves.
Our
3Q results include the net impact of 526 million from items that we have called
out due to their one-off nature within the context of the quarter. This
compares with a single one-off gain of 600 million that we had previously
flagged relating to the Fondcenter sale. Adjusting for the items that we’ve
called out, PBT was up 41% to 2.1 billion. On this basis, our cost-to-income
ratio improved 6 percentage points to 73%, with 12% income growth outpacing
expense growth of 4%.
We’ve
provided an overview of these call-out items in our deck, which you can find on
a 3Q and 9-month basis in the appendix. I’ll highlight a few of these items.
First,
we realized a 631 million gain related to the sale of Fondcenter, which closed
in September and mostly benefitted Asset Management, with a smaller part in
GWM. There was no net tax expense recognized on the gain, which is the main
reason why our Group tax rate is lower this quarter at 19%.
Second,
in order to provide additional career flexibility for eligible employees, we
modified the forfeiture conditions of certain outstanding deferred compensation
awards for voluntary leavers, which accelerated 359 million of personnel
expenses into the third quarter. There will be a corresponding saving spread
over future periods, most of which over the next two years.
And
lastly, in the IB, we booked a 215 million gain on the sale of intellectual
property rights associated with an index family.
The
impact of these call-out items mostly cancel out in the business divisions'
P&L, except for Asset Management given the size of the Fondcenter gain.
Slide
13 – Global Wealth Management
Global
Wealth Management produced its best third-quarter pre-tax profit since 2011.
PBT grew 18%, fueled by transaction activity and loan growth. Performance was
consistent throughout the quarter, with revenues at around 1.4 billion in each
month. Expenses were down 1% compared with 3% higher revenues, leading to a 3
percentage point cost-to-income ratio improvement.
We had
our highest net new loan volume on record for a single quarter at over 10
billion, with all regions contributing, and especially strong growth in the
Americas. Year-to-date, net new loans were 18 billion, consistent with our
strategic focus on this key growth driver. Our loan portfolio quality remains
high, and we have achieved this substantial loan growth without increasing risk
on a portfolio level, and with no build in stage 1 and 2 credit loss reserves
and an overall net credit loss recovery in the quarter. There is also
significant further upside potential, as lending penetration remains low at
just 7%.
We
continue to gain momentum with our “one firm” initiatives. Year-to-date,
collaborative efforts between GWM and the IB produced nearly 50 million in
revenues from 47 deals. Our separately managed accounts initiative in the US
drove 8 billion of inflows into Asset Management in the quarter and over 35
billion since inception in 4Q19. And GFO income across GWM and the IB was up
27%.
Slide
14 – Global Wealth Management
Recurring
fees decreased slightly, as the benefit of higher invested assets was offset by
lower margins. Part of this margin compression was driven by clients moving
into lower-margin funds, including shifts in our fund offerings to address a
new US regulatory requirement. Sequentially, we were up 10%, as the billing
base increased and recurring margins were stable.
Our
US business moved to average daily balances for client billing on advisory
accounts as of October 1st. Billing now better reflects the actual value of a
client’s assets through the quarter. This change will also remove the lag
effect the prior billing convention had on recurring fees in the region.
This
was made possible by the technology enhancements we are implementing with our
Broadridge partnership, with full conversion to take place in the second half
of 2021. With this initiative, we are building an entirely new,
state-of-the-art technology platform on component architecture, which will
allow us to add more new in-house and third-party services and functionalities,
while also generating substantial cost savings.
Net
interest income was down 2% from 3Q19, and 6% quarter-on-quarter.
Sequentially, higher NII from loan growth was more than offset by significant
deposit margin compression from the US dollar rate cuts – mainly outside the US
– along with increased liquidity costs related to COVID that were passed on to
the business during the quarter.
We
have now absorbed the majority of the impact from these rate cuts. Over the
coming 3 quarters, lower dollar rates will continue to be a headwind to deposit
NII sequentially. We are confident in our ability to offset this with loan
growth.
Transaction-based
income was up 16% on continued high levels of client activity. Our research,
solutions, and investment content are resonating with clients, as they seek
advice and guidance to navigate the current uncertain environment that presents
both challenges and opportunities. We have now seen three consecutive quarters
of strong, year-on-year transaction revenue growth, also driven by a series of
actions launched by Tom and Iqbal coming into this year. We will continue to
focus on dynamically developing and deploying tailored solutions for our
clients, leveraging our market-leading CIO and integrated IB solutions
platform.
Slide
15 – Global Wealth Management
Moving
to the regional view, we had growth in all regions, with record 3Q PBT in the
Americas and APAC.
In
the Americas, we recorded 12% higher PBT despite a decrease in revenues, as
costs declined more on the back of both lower personnel and G&A expenses.
We also had a credit loss recovery on a position impaired over the previous two
quarters. Mandate penetration rose sequentially and net new loans were an
impressive 5 billion, helped by a fixed-rate securities-backed lending product
we offered clients in July and August that generated significant demand.
PBT
was up in both EMEA and Switzerland, partly helped by gains from the Fondcenter
sale. Loans were up sequentially in both regions.
Sergio
has already highlighted APAC’s impressive performance for GWM and the Group.
We broke the half a trillion mark for invested assets, PBT was up 57%,
transaction-based income was up 72%, and we improved the cost-to-income ratio
to 63%.
Slide
16 – Personal & Corporate Banking (CHF)
Moving
to P&C. PBT was down 13%, partly as a result of credit loss expenses of 84
million francs.
Income
before credit provisions was down 1%, mainly reflecting 40 million lower income
from credit card and foreign exchange transactions on reduced travel and
leisure spend abroad by clients due to COVID.
NII
came down on lower deposit revenues related to dollar interest rate headwinds
on our corporate and institutional clients, while recurring net fee income rose
on higher custody fees.
Of
the 84 million credit loss expenses, 54 million related to a case of fraud at a
commodity trade finance counterparty, affecting a number of lenders. P&C
now has only minimal remaining exposure to this counterparty.
Operating
expenses decreased by 3%.
Our
business momentum in P&C remains strong. Net new business volume growth in
Personal Banking was 5.6% for the quarter and a record 7.5% for the first nine
months of 2020. For corporate and institutional clients, we saw more than 10%
annualized lending growth from net new loans year-to-date excluding COVID
loans.
Slide
17 – Swiss lending snapshot
We
wanted to give you a quick snapshot of our high-quality Swiss lending
portfolio.
About
65% of our exposure relates to mortgages. The vast majority is residential,
most of which owner-occupied, where we do not see signs of stress. We’re
carefully managing our risks in our commercial retail and office portfolio, but
this is less than 5% of our Swiss mortgage book.
31
billion of our exposure is to Lombard loans. Remember that in March, we went
through a real-life stress test on this portfolio, with barely any losses.
We
have 14 billion of loans outstanding to small and medium enterprises. Under
the government’s COVID loan program, our clients have credit lines of 3.3
billion with us, of which 1.7 billion is drawn. One interesting observation
here is that we saw only a small increase in utilization of these COVID credit
lines between July – when the program closed to new applications – and
September, from 48% to just 52%. We also saw very limited increase in
drawdowns by SMEs generally. This speaks to the relative strength of the Swiss
economy.
The
quality of our lending book and our strong financial position allow us to
support our clients through these difficult times, which in turn supports the
economy.
Slide
18 – Asset Management
For
Asset Management, given the magnitude of the call-out items I referenced
earlier, including the Fondcenter gain, my comments here will exclude these.
Asset
Management had another great quarter with PBT up 42% to 191 million dollars and
6% positive operating leverage.
Operating
income was up 27% on strong overall performance, with exceptionally high
performance fees, primarily driven by Hedge Fund Businesses. Net management
fees rose 12% to the highest level in over a decade, with continued, excellent
momentum in net new run rate fees. Since the start of 2019, net new run-rate
fees are in excess of 150 million annualized, highlighting both the strong
volumes and high quality of our net new money flows.
We
had inflows of 18 billion excluding money markets, contributing to a record
invested assets, which are now within striking distance of the 1 trillion mark.
Slide
19 – Asset Management
Our
consistent investments and strategic execution over the past years have come
together to create strong momentum for Asset Management.
In
Greater China, we are ranked as the #1 international manager based on our
market share of over 9%, and we continue to invest and expand our onshore
product offering.
We
have more than doubled our sustainable and impact investing-focused AuM
globally over the last twelve months. And we’ve just launched some exciting
new products in the sustainable investment space, like our expanded suite of
“Climate Aware” strategies, which build on our award-winning passive offering
to include active equities and fixed income funds. Another example is our
in-house hedge fund O’Connor’s new Environmental Focus strategy.
We
already talked about the inflows related to our initiative with GWM on
separately managed accounts in the US, which continue to be well ahead of our
plans.
Clients
are recognizing our differentiated capabilities and innovation, and we see it
in the net new money inflows of nearly 60 billion year-to-date or 9% annualized,
with positive contribution from all channels and regions.
Slide
20 – Investment Bank
The
IB had another excellent quarter and delivered its best operating income in
over five years and the best 3Q PBT since we restructured our IB in 2012.
Revenues were up in all regions and nearly all products.
Global
Markets revenues increased by 26% on [edit: excluding] the gain on sale
of intellectual property rights that I mentioned earlier. Execution &
Platform, Derivatives & Solutions, and Financing were all up year-on-year.
Derivatives
& Solutions drove the biggest increase with particularly strong Equity
Derivatives and Credit performance. Execution & Platform was up 18%, with
higher client activity levels in Cash Equities, especially in APAC, and higher
volumes of fixed-income e-trading. We also believe we gained market share in
electronic trading in FX, a testament to the investments we have made in our
platforms over the years.
Within
Global Markets, using the traditional split of this business, Equities rose
43%, or 19% excluding the gain. FRC increased by 41%.
Global
Banking delivered its best quarterly performance since first quarter ‘18, as
revenues increased by 44%, with substantial growth in equity capital markets
and leveraged capital markets revenues. All products outperformed their
respective market fee pools, including Advisory, where the fee pool contracted
by a third.
The
IB's cost-to-income ratio improved to 74% as the increase in revenues
significantly outpaced cost growth.
IB
risk-weighted assets came down by 6 billion during the quarter on the back of
lower stressed and regulatory VaR, reflecting less volatile market conditions
in the quarter as well as risk management activity. We took advantage of good
market conditions to de-risk positions primarily in LCM, freeing up capacity
for new underwriting activity that helped boost our results this quarter.
Slide
21 – Investment Bank
Throughout
the first nine months, we maintained our focus on deploying capital with
discipline and for appropriate returns. The numbers on this slide speak for
themselves.
Slide
22 – IFRS 9 credit loss expense
At
the Group level, we booked credit losses of 89 million in the quarter, of which
8 million related to stage 1 and 2 and 81 million related to stage 3 positions.
Updated
macroeconomic factors resulted in a small recovery in stage 1 and 2 expenses.
However, given the significant uncertainty that remains, we considered a
release premature and applied post-model adjustments to overlay and offset
these effects.
Stage
3 impairments are concentrated in P&C as I previously mentioned, with a
partial offset from the GWM recovery that I highlighted earlier.
Slide
23 – Capital and leverage ratios
Our
capital ratios remain substantially above regulatory requirements. That's
without taking into account any of FINMA's temporary relief measures.
Our
CET1 capital ratio was 13.5%, and would have been 14% before establishing the
1.5 billion reserve for future buy-backs. Much like dividend accruals, this is
stripped out of CET1 capital, but still sits in our tangible equity.
Our
CET1 leverage ratio was 3.8%, excluding FINMA's temporary exemption for sight
deposits at central banks. Before the reserve for buybacks, it would have been
4%.
Now
back to Sergio for his closing remarks.
Sergio P.
Ermotti
Thank
you Kirt.
Before
we move on to Q&A, I’d like to share a few reflections on my 9 years as the
chief executive of this incredible organization.
Since
I took over, we have made great strides to transform UBS. The quality of our
people and the strength of our culture today are both testaments to that.
According to our most recent employee survey, 86% of our people are proud to
work for UBS.
This
year, I have felt particularly proud, and humbled, by the dedication,
flexibility and stamina that my colleagues have shown in the face of
unprecedented personal and professional challenges.
I
would like to sincerely thank everyone here at UBS for their hard work, their
loyalty and their passion to deliver for our clients.
I
would also like to acknowledge and thank our clients. They have always been,
and will remain, at the heart of what UBS stands for. I have had the pleasure
of knowing many clients through my time here, and today I would like to thank
each and every one for their continued trust in the bank.
To
our shareholders and the analysts who have been with us on this and the
previous 36 earnings calls of my tenure: while I haven’t always agreed with
some of you, I always valued your perspectives and various inputs to our
debates, and never took your support for granted. I’d like to thank you for
your support, and for challenging and encouraging us to strive for more.
Also
many thanks to the Investor Relations team at UBS for their outstanding
support.
Last
but not least, a special thanks to those who served with me on the Group
Executive Board over the years. Together, we made this challenging but
rewarding journey to turn UBS into what it is today.
UBS
has all the options open to write another successful chapter of its history
under Ralph's leadership. With warm feelings and keen interest, I’ll be
keeping an eye on UBS from across the street.
Thanks
and now, let’s move into Q&A.
Analyst
Q&A (CEO and CFO)
Magdalena
Stoklosa, Morgan Stanley
Thanks
very much and good morning. Now two questions from me to start. One on NII and
another one on kind of investment priorities.
So,
on NII, let me return to your NII strategy and that’s particularly in wealth.
Now volumes have been very strong year-to-date and you have clearly planned for
more, but in other words could you kind of tell us how much volumes you think
you need, particularly in 2021, to offset the US dollar kind of rate pressures?
And
secondly, I suppose, Sergio, if you could kind of share with us, when you think
of incremental investment dollars, as you look at the business now, what would
be your investment priority, as you hand over to Ralph Hamers?
Kirt
Gardner
Thank
you, Magdalena, I’ll take the first question. In terms of net-interest income,
as I highlighted in my speech, we have seen substantial momentum in our lending
revenue. In fact, overall, our loans were up 14%, or 25 billion. So, there’s
also some foreign currency translation impact in addition to the net-new loans
of 18 billion. That helps us offset a good portion of the US dollar interest
rate headwinds: so quarter on quarter I think it’s probably the best place to
focus, where we did see a 100 million of headwinds from lower dollar interest
rates. And then also, you might recall I indicated we were going to push out
Covid-related liquidity costs in the business divisions, which we did during
the quarter, and there’s another 25 million there. Now we actually saw that
peak during the quarter. So therefore, the US dollar related headwinds will
begin to taper as we get into the fourth quarter and also into 2021. And we
believe that we will fully absorb it by the end of the second quarter.
Now
also, as I indicated in my speech, we expect that the continued momentum from
the loan volumes we already generated and we expect to generate will allow us
to fully offset any remaining headwinds from US dollar interest rates.
Sergio
Ermotti
Thank
you, Magdalena. In respect of priorities on investments going forward, I guess
you mean more in terms of more the cost side of the equation. I think that we
need to continue to be very balanced in our front to back approach, in how to
invest the money. I think it’s very important that first of all we continue to
generate the capabilities and the right to invest in our future by creating
efficiencies and effectiveness in the way we look at it. I think the Covid
experience has demonstrated the validity of having a strong infrastructure and
a resilient infrastructure that supports higher volumes when necessary, but
also the necessity to reflect the technology and digital developments in
respect of how we face clients: what we offer to clients and what is also very
important, how we give the tools to our front people, being the client
advisors, being salespeople in the IB, or investment bankers in the IB and
asset managers and so on: to be able to be more productive and more informed and
better equipped than our competition. So, it will continue to be a balance
between investing front to back, and creating through that also cost synergies,
because many areas of course we need to make sure that we also capture the
opportunities that technology can offer to become more efficient.
Magdalena
Stoklosa
No,
absolutely. And if I may, Sergio, since it’s kind of the last earnings call, I
also just wanted to say that it’s been an absolute pleasure for us kind of
working with you over the years, and wish you all the best with the Swiss Re
Chairmanship and they’re lucky to have you.
Sergio
Ermotti
Thank
you, Magdalena. Same here.
Kian
Abouhoussein, JP Morgan
Yes,
thanks for taking my question. First of all, Sergio, thanks for all the support
and the calls, and clearly the early calls that you joined with us, highly
appreciated, and hopefully it gives you an opportunity not to start the calls
too early going forward – but we very much appreciate your support.
I
have two questions. The first one is related to total pay-out – because clearly
you’re changing the mix, you also mentioned that in the fourth quarter you
might make further reserves. And I’m just trying to understand how I should
think about pay-out policy. I think you say any excess capital will be paid
out, but clearly just for us to think about, how should we think about that
quantitatively? And in that context, how should we think about the pace of
buy-backs, because clearly you’re reducing the cash pay-out, the cash dividend
absolute, and as a result clearly you are substituting part of that with
buy-backs. I am just trying to understand the pace of buy-backs: should we
think of it gradual as of 2021, or how should we think about the whole process
of reserving and buying back?
The
second question is really more of a general question about your view of what
you think was your biggest change in the group, which had the biggest impact –
and also what is it that you would have liked to have done looking backwards,
looking back mirror, and something that maybe didn’t happen?
Sergio
Ermotti
Well,
thank you, Kian. For sure, I won’t wake up so early in the future. So, in terms
of pay-out policies, I don’t think that we, you know the intention here is to
continue to distribute any excess capital that we don’t need to grow the
business. And also, I think that the key levers for us are also very highly
determined not only by the guidance that we have been giving you in terms of
where we think we’re going to be in terms of CET1 ratio until the Basel III is
implemented, because in two or three years’ time my colleagues will also have
to reassess and rebalance around 13% to whatever is appropriate – because if
you look at pro forma, since I started, we are now running at 19% CET1 ratio,
so the older regulatory inflation that is coming in makes the 13% that we are
used to talk about a little bit of a relative gain.
And
most importantly, Kian, is the stress. Our own stress assessment, and also the
regulatory stress models that we get, are also very indicative of how much
capacity we have for capital returns – so I don’t think that it’s going to be
strictly driven by a pay-out ratio or set of numbers but those two elements.
So
in terms of timing, the pace will be determined in 2021 by two factors – of
course the most important even in respect of these 1.5 billion or whatever
we’re going to accrue in fourth quarter, determined by the regulatory framework
in terms of internationally you will see that there is a clear desire at this
stage, and we understand also that the uncertainties are there and to some
extent we need to wait before we re-establish a more significant capital return
plan.
But
I would say that as soon as regulators are starting to differentiate between
banks, who needs more capital and who needs less capital, and also, they look
into the business model of banks, I believe only by then can we resume a
capital share buy-backs.
So
hopefully we believe at the beginning of 2021, of course you need to take into consideration
some idiosyncratic legacy issues that we will need to manage – but there is
ample capacity here through the reserves and the cash generations we have in
the business, to create enough buffers to manage any kind of scenario for UBS
going forward.
Look,
in terms of changes, you know I don’t bore you with numbers, because at the end
of day you can look at the numbers – they speak for themselves – and of course
we went through a lot of changes and transformation: derisking, repositioning
of wealth management, to a new paradigm, but I would say that probably the
most, the thing that I see and I feel with my colleagues has changed a lot, is
we brought back you know the culture to the bank, a more homogenous way, I
think that we pretty much here everybody in the bank knows what we stand for –
the way we want, what we want to achieve, but also how we want to achieve our
results, and in my point of view this is probably one of the biggest changes
that together with my colleagues we brought to the bank, and most importantly
with the contribution of my colleagues.
Regrets,
well, you know, there is always regrets when you look backwards – because I
don’t think anybody can basically look at nine years and pretend everything has
been going right – but I think that pro saldo the regret is that one has to
live twice in order to capture maybe the opportunities that, you know, I think
UBS has still ahead of itself.
The
regret of having a little bit better market environment, that is definitely
maybe for another life – I will have a better environment as the CEO of a bank.
Not this one.
Kian
Abouhoussein, JP Morgan
We
hope so all, thank you very much.
Jeremy
Sigee, Exane BNP Paribas
Thank
you, good morning, and thank you from me as well, Sergio – thank you for everything
you’ve done with us over the years and best wishes for your next steps. Just
two questions please. One is just picking up on the comment you made a moment
ago: Just around the sort of regulatory and political process for approving the
resumption of buy-backs. You mentioned the international dimension. And I just
wondered, to what extent a Swiss decision on restarting buy-backs will be
constrained by a need to coordinate with what the FED is doing, and what the
ECB is doing – whether that is a constraint on the process. And more broadly,
what do you see as the constraint, or where do you see the political debate in
Switzerland about allowing some or all Swiss financials to resume share
buy-backs. So, if you could just talk us through the domestic and international
politics on that. That would be great.
And
my second question was more sort of nuts and bolts about the cost accruals in
the investment bank – and just how you feel you are accrued at this nine-month
stage – in other words, do you think that you’ve got sort of conservative
accruals with scope to claw back something in fourth quarter?
Or,
you know, if we get a normal revenue level, will we get another sort of 70ish
per cent cost income? So just how do you think you’re accrued in the investment
bank for costs? Thank you.
Sergio
Ermotti
Thank
you, Jeremy. I’ll take the first question and I’ll pass the second to Kirt.
Well, you know, I can’t speak for FINMA and how they make their decisions. So I
think that’s a – I would probably refrain from doing that – but it’s quite
clear that at this stage there is a necessity to still, and as I mentioned
before, to some extent I do understand the necessity of trying not to single
out or create a stigma in the system of who can pay dividends or who cannot pay
dividends, and do share buy-backs and not do share buy-backs. But over time, I
do hope that internationally and domestically, there is differentiation. I
think that it’s very important to, number one, reinforce the credibility of the
regulatory regimes that we introduced and that we are managing today.
And
I don’t think that one size fits all in terms of capital returns policies going
forward is the right solution – I think that it’s also very important for all
of us, and for you guys particularly, to make this industry an investable asset
class. By basically trapping unnecessary capital in the banks, you know, you
either are going to make it not attractive or you are going to force the system
to deploy capital in a way that over time cannot be constructive, no matter if
it’s used for organic or inorganic growth. If you basically don’t allow the
right amounts of capital to be put back into the system, it’s dangerous,
particularly when you have banks that are trading below book value and there is
an opportunity to utilise share buy-back as a very flexible and efficient way
to return capital to shareholders.
I
think there is way too much – and now I’m going into potentially the political
– but not only more the media side of the equation: There is a tendency to demonise
share buy-backs. I think that share buy-backs are a very efficient way to
retain flexibility, regulatory flexibility, prudential flexibility, while
returning capital to shareholders. So I don’t see any political aversion in
Switzerland in that respect, as long as we demonstrate, like we did – that we
are able to support the economy and put a very proactive, adding a very
proactive role in doing that and funding the economy – there should be no doubt
that there is an advantage for Switzerland particularly to maintain a very
strong financial centre and an investable asset class in the banking industry.
Kirt
Gardner
Yes,
Jeremy, so just in terms of your second question: mechanically, what we do
across all our business divisions is that we accrue after economic contribution
but before variable comp or bonus, and so therefore we take into account the
cost of capital that we deploy and the businesses’ use. And year to date, we’ve
accrued on that basis, and we feel like we’re fully accrued in the IB but also
across all our businesses for the result that they’ve generated to date. Now
having said that, just like all our peers as we get into the fourth quarter, we
learn more about what the market is likely to do and there are other factors
that could be taken into account for finalising our compensation levels overall
– but as I said, just to be clear again, we feel very comfortable that we’re
fully well accrued for the investment bank based on its performance year to
date.
Jeremy
Sigee, Exane BNP Paribas
Ok,
thank you.
Benjamin
Goy, Deutsche Bank
Yes
hi, good morning, two questions please. First, one more on pay-out. Your
cash-dividend is about a 20% pay-out ratio, just wondering how we should think
about it going forward, given your very strong net-profit level this year.
Should we think of it a little bit at the lower end to ensure progressiveness
in the future? Or is that kind of a good run-rate also going forward?
And
then secondly, a smaller one on asset management, in particular within your
equities’ business, another quarter with very good inflows. I think partially
that is driven by the separately managed accounts but also the underlying
business seems to be doing well – just wondering, what you are doing there
specifically? And on the cross-selling of these SMA, I guess because that’s the
main story there? Thank you.
Sergio
Ermotti
So,
on the pay-out ratio, as we outlined, the policy, you see in the accruals
clearly indicates the new base for our cash dividend going forward. As we
outlined, we believe that the pay-out ratio for cash will be similar to our US
peers. And we will of course also continue to strive for very low nominal
increase year on year to reflect profitability and so that we improve a little
bit our cash dividend, but as long as the stock trails below book value or
tangible book value, I think that it’s quite clear that we will prefer to do
share buy-backs, also in order to retain, as I mentioned before, going forward
more flexibility in terms of how to navigate any challenges that the industry
and we may face, going forward: I think you can see that resetting of the
pay-out being closer to our US peers ‘levels going forward.
Kirt
Gardner
Yes,
Benjamin, in terms of asset management flows, as you indicate, they are very
strong in the quarter but they’re also very strong year to date with 18
billion, excluding money markets and as I referenced, that’s an 8.9% annualised
growth rate – but the 50 billion excluding money markets is 8.2%, and while
clearly there’s been a benefit in positive flows from the SMA initiative with
our US wealth management business that has exceeded our expectations, if you
look at the totality of our flows, they’re actually a quite broad base and of
high quality, so we’ve seen good flows across all our channels, institutional
wholesale where we’ve invested as well as GWM across all of our strategies,
including because as we’ve seen very very good performance in our inhouse
O’Connor hedge fund, and have seen good flows there and across hedge funds –
the flow on the active side has been more concentrated in equities, also as you
mentioned. And the testament to that quality is the fact, as I highlighted in
my speech, our net new run rate based on fees accumulated year to date are 150
million and I think that just speaks to the quality of the flows overall.
Benjamin
Goy, Deutsche Bank
Thanks
very much and all the best for the future and specifically in your new role,
Sergio.
Sergio
Ermotti
Thank
you, Benjamin, also thank you Jeremy.
Anke
Reingen, RBC
Thank
you very much for taking my question and from me as well, thank you for all
your help and being on the calls in the early mornings and all the best.
Two
questions please, first on capital return: I understand your 20% comment on
your dividend accrual, and in terms of the buy-back, the 1.5 billion: Should we
think about this being a 30% ratio taking the total capital return to 50%, or
is the buy-back more as a fixed amount in terms of absolute terms that you’re
envisioning. And could we end up in a situation where there is basically, in
2021, you’re executing on your 2020 buy-back as well as on your 2021 buy-back?
And
then just secondly, on the tax, could you talk us through about the moving
parts as the tax rate would go up in the US?
Thank
you, Anke, as well, on your comments and remarks. So, in terms of total
pay-out, I think it’s a good question because we need to clarify this topic. We
have no intention to reduce the pay-out ratio that is available to
shareholders. We have no intention to have a fixed pay-out.
The
pay-out will be a function of the excess capital that we believe we have on our
balance sheet based on our future plans on how to grow organically the
business, and the stress scenario we have. So, the total pay-out ratio can be
very similar to the one we had in the past. So, we will not retain excess
capital and that’s the beauty of the share buy-back. Share buy-back and
function, and reflect in a much better way at this stage our flexibility to
move around this pay-out ratio – but that’s you know, there is no constraint,
we are able to grow our businesses by self-generating capital and also excess
capital above those levels we will return. So, there is no fixed percentage in
mind or implied any numbers that you saw being accrued or communicated.
Kirt
Gardner
Yes,
Anke, in terms of your tax question – so maybe if we use what has been put
forward as the Biden tax program, the increase in the corporate tax rate from 21
to 28 per cent, that would result in a write-up of our DTAs of around 2 billion
and an increase in our overall tax rate of around 2%. But very importantly,
because we do have the advantage of our DTAs in the US, first of all we will
continue to pay zero tax, or almost zero – there is still state and local taxes
that we would incur – in the US market and also the overall cash tax that we
will pay at the group level will not change at all until the full expiry of our
DTAs.
So,
we wouldn’t see any change in our cash tax position, which would allow us to
continue to accrue the same level of capital that we’re generating today and
also help the other question that you had around buy-backs and cash dividend.
Anke
Reingen, RBC
Okay,
thank you.
Stefan
Stalmann, Autonomous Research
Yes,
good morning. And first of all, Sergio, all the best and thank you very much
for the last nine years – never a boring moment, much appreciated.
I
have two, I guess, nuts and bolts questions – the first one relates to the
changes to your deferred compensation, the 359 million. If I understood it
correctly you are amortising, you are accelerating the amortisation of an
existing deferral – and 359 million seems like a pretty big acceleration, you
only had about 1 billion of deferred compensation that needs to be amortised at
the end of 2019.
So,
I’m trying to understand what this is actually reflecting – are you trying to
facilitate the exit of UBS from the group of let’s say highly paid MDs that are
not performing so well anymore and would maybe like to leave voluntarily? Maybe
you could give a bit more colour on what you’re trying to achieve with this
move.
And
the second question relates to the commodity trade finance fraud in P&C – I
appreciate that you can maybe not tell me which company that is, which
counterparty that is, but can you maybe say when this fraud actually occurred
in the third quarter, or was it dealing with a fraud from the previous
quarters?
And
is it reasonable to assume that this is a Swiss counterparty?
Thank
you very much.
Sergio
Ermotti
Thank
you, Stefan, for your words, and yes, it was never boring. You’re right. So, in
terms of acceleration in respect of deferred compensation – this is not about
managing under performers, we do manage this over the cycles, we look at
underperformance. It is more reflective of two issues. We have realised,
although we continue to believe that a more restrictive vesting policy in our
deferred compensation plan is appropriate, that during the Covid times and many
of our colleagues – in the bank and not just highly paid employees across the
board and touching different segments – are maybe thinking about reprioritising
their lives. And I don’t think it’s appropriate for people who have an
intention to do something completely different in their lives outside the
financial services industry and banking to be restricted by the fact that we
have longer vesting conditions than many of our peers.
So,
I think it’s realisation – together with that we also recognise, you know, in
the bank there was a necessity to thank all the people that have less senior
ranks in the bank for their efforts through the Covid environment. So that’s
the reason we, for example, granted one week of salary to all employees – so
around 25,000 people are touched by that – so it’s part of a more broader issue
and it’s not about underperforming or overperforming. It’s a realisation that
Covid has changed the lives of many people and we should not stand in the way
of people’s live decisions.
Of
course, if they want to re-enter the industry and join a competitor, they would
have to forfeit any compensation.
In
respect of your question, unfortunately you are right – I cannot really talk
about anything other than of course this fraud was something that we discovered
and was crystallised during Q3 and of course is therefore reflective of what
happened in Q3. And I think that there has been some media coverage in some
specialised magazines about who may or may not be the counterparty, but for
obvious legal reasons I will not go into any further detail.
But
only to underline that this is not an idiosyncratic UBS situation – this fraud
has impacted a number of lenders and we believe that in that sense, you know,
we took the appropriate provisions and our exposure on this matter is the de
minimis.
Stefan
Stalmann, Autonomous Research
Great,
thank you very much again.
Adam
Terelak, Mediobanca
Yes,
good morning, so I had one on capital and then another one on loan growth in
GWM. So, on the capital front, it feels like a slight change in how you’re
dealing with the buy-back – so previously it was obviously coming out of each
quarter’s earnings and now you’re accruing it on CET1 ahead of the buy-back. Is
that just caution in the face of current regulation? And will that go back to
normal in terms of coming out of, as you go earnings, once the buy-back is
turned on?
And then
on GWM loan growth, kind of a couple of questions there: It seems like the ten
odd billion of GWM loan growth is added 60 million plus of revenues, but on the
other side of that fee the loan growth seems relatively limited – if you just
talk about the economics of that sort of loan growth in terms of the outlook
for RWA, whether that is still going to be relatively balance-sheet light while
still managing to defend the NII? Thank you.
Sergio
Ermotti
Thank
you, Adam, I’ll take the first question. The reason why we created this reserve
is also to reflect the unique situation we are in right now in terms of the
regulatory constraints that we discussed internationally are there, the one
that we are subject to, the intention was to really flag if necessary at all,
what is our intention, what we would have done so far, if we could have
basically acted without any of those constraints. And I don’t believe it’s
necessary in the future to do that – but you know, the circumstances will
determine how my colleagues will react and adapt to this environment.
But
this is something that is more reflecting of the situation that we have right
now in terms of constraining execution, and is a further more formal commitment
to shareholders in respect of what we are doing is a way to create more
transparency on what we have done so far this year, if we would be allowed to
do that.
Kirt
Gardner
In
terms of your question on the dynamics of lending movements in our wealth
management, so within the quarter, quarter-on-quarter, we saw around an almost
40 million contribution of lending revenue, lending, NII, that increased from
2Q.
Now
overall, of course, the way that the 10 billion will materialise, is that we'll
see that fully in our run rate in the fourth quarter, and so we'll see more
benefit of that 10 billion in the fourth quarter than we did in the third,
which gives us a positive view on quarter-on-quarter trajectory of lending
revenue going forward. Now the composition of the 10 billion, it was mostly
Lombard security-based money out of US, as well as some mortgage, and it was a
smaller contribution from structured lending. The risk density, so the RWA
contribution from our Lombard portfolio, is relatively low, hence you didn't
see big movements in RWA, although you did see some increase in GWM. Going
forward, we would expect to see contribution across the range of our lending
products, including the more structured-end, and the more structured end does
have higher risk density and therefore would contribute more risk RWA. But
overall you shouldn't see a material change in the overall risk density of our
GWM business.
Adam
Terelak, Mediobanca
Right.
Thank you, and all the best.
Kirt
Gardner
Thank
you, Adam.
Andrew
Coombs, Citigroup
Good
morning. First let me echo the thanks to everybody. I’ve also enjoyed reading
some of your wide-ranging exit interviews with the press over the past few
days. Most of my questions have been answered, but let me just give a couple on
the investment bank. You have seen a very strong quarter in investment banking,
as you said it is across regions and across products. But I did notice that the
Americas is now 40% of your investment banking revenue in the quarter – it's
usually around a third – so it does look like the Americas was particularly
strong, and so perhaps you could comment on that. And then, secondly, the
Banquo de Brazil agreement has been announced. Perhaps you could just elaborate
on the advantages and what you see for that going forward? Thank
you.
Kirt
Gardner
Thank
you, Andrew. As I highlighted, the contribution was broad based across all
regions for our investment bank. Now we did see a very good investment banking
quarter in the Americas, and that did help in particular to have a higher level
of contribution from that region. We also saw a very, very strong quarter for
us in Asia Pacific, which is something we highlighted, as well as in the
document, you see that APAC is up considerably year-on-year. Within Asia it was
very high driven by equities. I think it's really in-line with the overall
level of the equity activity that we saw across that region. In the Americas it
was a bit more mixed between some equity but as well as equity derivatives.
Equity derivatives had a better quarter for us in the Americas after a fairly
weak second quarter. We also saw very good ECM equity capital markets and
leverage capital markets activity that helped boost the Americas contribution
overall to the investment bank.
We
were pleased that we closed the Banquo do Brasil transaction on 1 October. We
had intended coming into the year to close that earlier, but obviously because
of Covid effects, the regulatory approvals took much longer to work their way
through the system in Brazil. So now that that is launched, we've already started
actively to build up and we've already seconded staff to that initiative and we
would expect over time that this will allow us to establish a very, very
competitive investment banking platform not just in Brazil, but it's across
multiple countries including Argentina, Uruguay. So it will allow us to
leverage the strength of Banquo de Brazil's corporate franchise in the strong
lending footprint that they have there with our investment banking expertise,
and we think this will create quite a compelling offering for our clients.
Andrew
Coombs, Citigroup
Thank
you.
Andrew
Lim, Société Générale
Hi,
good morning, and congratulations from me also Sergio for the past nine years.
You certainly put UBS on good footing for your successor.
So
to my questions, on the global wealth management, obviously we've had a lot of
volatility these past few quarters, I was wondering if you could take stock on
where you think the gross margin might move going forward. You've given quite a
bit of colour on the NIM side, but on the recurring fees side and also on
transaction fees, perhaps you could give your thoughts as to how sustainable
those fees are going forward, and what the key moving parts are?
And
then a question for you, Sergio. We've seen quite a lot of M&A activity in
asset management, there definitely seems to be a trend towards consolidation.
If we look forward to UBS’s own asset management business, you're closing in on
one trillion dollars of AUM, just wondering what you think, in terms of its
strategic positioning, whether that's going to be enough, or whether also
there's perhaps other strategic gaps that needs to be filled on the
distribution of funds, or the product offering?
Kirt
Gardner
Yeah,
Andrew, I'll take the first question. In terms of GWM margin, as I noted you’ve
seen stability quarter-on-quarter on our recurring margin after quite a bit of
compression from a number of mandate and non-mandated impacts, including what I
mentioned that some of the changes that we've made in our US business to
address some regulatory requirements there. Clearly, we are managing all of the
levers for our recurring business, and we would look to create continued
stability as we go forward sequentially each quarter. Nevertheless, there are
competitive pressures there. There are also segment mix and other changes that
will occur, so we would expect over time for there to be some continued margin
compression, although not to the extent that we've seen over the past year. If
you look at our net interest income margin, that's dropped down to 14 bases
points. We highlighted the fact that we absorbed most of the US dollar
headwinds we've got some tailwind from lending. We would see that stabilising
over the next several quarters to around the current level. In terms of
transaction revenue, which is really what we saw come through to drive the
growth in our operating income on a more pronounced basis, up 16% year on year.
Also as we mentioned, this remains a key focus of Tom and Iqbal’s, and we are
continuing to drive out improvements and connectivity between our CIO, our IB
platform that is now much more integrated along with linking in the lending. We
would continue to expect to see good levels of transaction revenue going
forward. And along with the typical seasonality, that’s the margin that you
would expect to see bounce around from quarter to quarter.
Sergio
Ermotti
Thank
you, Andrew. In respect of your question, first of all I would say that the
hard work that my colleagues put together in the last few years to reshape and
reposition our asset management business as a standalone unit are starting to
pay off and I'm glad to see that. For us, when you look at the fact that we are
getting close to the one trillion mark, it's an important milestone in respect
of creating some scale of fact which are necessary in that business. But most
importantly for us, was the ability to continue to develop a kind of unique
offering as part of an asset gathering equity story. So for us, asset
management fits very well into our equity story because, as you know, it’s very
low capital consumption compared to other banking businesses, there is a high
degree of synergies between asset management and the rest of the organisation,
particularly with our institutional and corporate clients, but also with wealth
management. And the fact that we have been able to create a unique segment of
strength like in sustainable finance, like in the alternative space, in passive
where we have very customised and high margin passive businesses, and the
alternative space in general are complementing the more traditional asset
management offerings. So, when you look at that M&A angle, you have to look
into, okay, first of all, how it fits into our equity story, which I believe
now is quite clear that it's very, very compelling and value-added story. And
looking at M&A, you need to basically say, how can you retain all of this
and creating shareholder value. And while there has been always a lot of
discussions around the Asset Management industry consolidation, the truth of
the matter, it's a very complex industry to merge because of different
cultures, ownerships and priorities. So you want to make sure that if you do
that, you don't impact clients by doing that, that you need to find the
partners that has the same culture as you have. Not an easy task. So I'm glad
that we have the flexibility to always look at the best interest of our
shareholders and clients without being forced strategically to make any actions
now.
Jonathan
Peace, Credit Suisse
Let
me add my congratulations as well, Sergio, on your time and your final quarter
at UBS. So my first question is just following on from the question on Global
Wealth Management margins. You're still seeing some gross margin erosion, but
how confident are you that your forward cost initiatives are going to see the
net margin find a floor around the 15 basis points level over the last couple
of quarters?
And
then secondly, your U.S. peers have talked about seeing kind of normal
seasonality with Q4 trading revenues pipeline maybe benefiting a little bit
from a pickup in M&A. I just wondered if you had any comments on that
similarly?
Kirt
Gardner
Yes.
Thank you, Jon. As I just referred to my last answer to Andrew, I talked a
little bit about the dynamics overall on the gross margin side. And as I said,
I feel pretty confident that the series of strong strategic initiatives that
are already underway and starting to gain some maturity will continue to
provide some support on the top line even as we see markets falter a little
bit. On the other hand, you've seen very good expense discipline in the
business. I think it is a strong statement, the fact that our expenses are down
1% year-on-year. And I would just add to the top-line comment, that Tom and
Iqbal remain very committed to continue to deliver property leverage. So
they're very focused on managing the expense line as well as the top line, and
I'm pretty confident that they'll strike that balance effectively going
forward. And I do expect positive operating leverage out of that business will
all continue to materialize over the next couple of years.
In
terms of what we heard out of U.S. peers, and I guess if we look at our own
business, I think, firstly, I would just note that we have seen volatility come
down. In the start of this quarter, volatility has been lower despite the fact
that we're within an election period. And I guess I suppose I would attribute
that back that to that Biden is so far ahead, it's created a little bit less
uncertainty in volatility. But still with the potential risk for a contested
election and also some of the other geopolitical factors that are going on
globally, that could contribute to some building volatility as we go through
the quarter.
Away
from that is, if we look at our banking business, you heard some commentary, of
course, the third quarter was a very a weak M&A quarter. I think there's
still a lot of uncertainty regarding M&A. There is more at least announced
activity that started to pick up. But still, depending on how the quarter
trends, I think there's a question as to what's going to really close within
the quarter. Beyond that, I won't say a lot of -- I won't make much comments at
all about how we're seeing our overall pipeline.
Sergio
Ermotti
Yes.
Maybe let me add. Jon, thanks for that. And I think that assessing seasonality
in our business in the last 24, 36 months is like assessing climate change. So
I don't think that there is any longer a clear defined pattern of seasonality.
So in that sense, it's extremely dangerous to try to project things into 2, 3
months with all uncertainties. So I would always refrain from making comments
on quarterly outlook. But I think that the level of activities is still there.
And of course, it's quite difficult to predict that the U.S. elections won't
translate into, as I mentioned before, our clients are clearly indicating that
they do plan to shift their portfolios no matter what the outcome of the
election is. Because there will be sectors that may or may not benefit from
stimulus packages, from different tax rates that may come or not, and that will
probably, we will probably see more movements after the elections.
Nicolas
Payen, Kepler Cheuvreux
Thanks,
good morning. I have 2 follow-ups, please. The first one is on share buybacks.
You said that you actually communicated your intention to resume share buybacks
to FINMA and that they raised no objection, yet you're still not allowed to do
that immediately, so could you elaborate why? Did they actually communicate you
any criteria for you or the industry in general?
And
then the second is coming back on the net new loans in GWM. Could you actually
tell us how much of that translated into net new money for AUM? And Sergio,
thank you for your support and good luck for your future challenge.
Sergio
Ermotti
Thank
you, Nicolas. I think the reasons are the same that you have been seeing also
being explained in public by regulators. And then what I mentioned before is
definitely the outlook probably that, assessment would have been different 2
weeks ago, sorry 2 months. I mean it was different, maybe if you look at the
outlook for the rest of the year. But the second wave coming into Europe and
the own resolve that an unclear situation about vaccine coming or not coming
early on is putting a little bit of prudence in the equation. So it's all about
that. It's the fear that the second wave may be coming and it's probably a
little bit of concerns of letting things reopen shortly before a new wave of
macroeconomic deterioration comes in. So hopefully, as I mentioned before, by
the early part of next year, we will have more clarity on this matter.
Kirt
Gardner
Yes.
Nicolas, in terms of your question on the net new loans, of the 10.5 billion,
around 5 billion of that was generated in the U.S., mostly in securities-based
lending. And in the U.S., unlike internationally, you're not allowed to
directly leverage your investments through those loans. So essentially, the
other half of it, the 5 billion, was a bit more broad-based across regions, and
also concentrated in Lombard lending, and there we did see some benefit for our
net new so money flows along with the lending and the leverage that our clients
took on as part of their investment strategies.
Amit
Goel, Barclays
Hi,
thank you. Echoing my peers, Sergio, yes, thank you for everything you've done,
and good luck for the future.
Just
maybe -- I've got 2 questions, one on that note and maybe one a bit more on the
business. So just curious, I mean actually, Sergio, as you do the handover, and
obviously, you've spent some time now with Ralph, just your thoughts in terms
of is -- or at least the group's key priorities going forward. Where do you
think most time should be spent and which areas?
And then
second, slightly more business-related question. Just curious on the U.S. part,
or sorry, the Americas, in terms of the Broadridge investment, just trying to
get a sense of what kind of impact you're looking for that to have as that
continues to roll out in 2021? Obviously, I see the commentary on being able to
charge clients on an average balance basis. But just trying to get a sense of
what kind of revenue impact and, or longer-term cost impact that's anticipated
to have?
Sergio
Ermotti
Thank
you, Amit. So I guess in terms of handover, personally, I believe that is going
to be a kind of split approach. The first one is to basically look at new ways.
And we have an ongoing plan, and I'm sure Ralph will bring his views and his
experience in helping us to make our front-to-back even more efficient using
data, digitalization to the next level. So we have plans, but they need to be
executed and they need to be focused, so I'm sure we will find ways to optimize
the way we run the bank front-to-back.
And
the second one, as we do that, as we did in the past, we need to continue to
execute on our plan. So it's not that the bank can forget that
quarter-by-quarter, we need to continue to deliver results and executing on our
strategic plan, but also adding an eye into what is the future and how to be
stronger and better for our clients and shareholders. So it's a double-pronged
approach, looking at day-to-day, but also thinking about the future.
Kirt
Gardner
Amit,
in terms of your second question, with the Broadridge partnership, which, as I
highlighted, is where we're already deploying some of the functionality, and
you saw some of that in the third quarter with an updated billing convention
and with our expectation that we will fully implement the platform during the
course of 2021. We do expect to have much more flexibility in deploying
services, new products, new solutions to our clients, streamlining workflow and
also some of the complexity around compliance, for example, and onboarding. All
of this should help to improve the productivity of our FAs in the U.S. where we
already have the most productive in the market amongst our peers. But we think
that this will help us take that productivity to the next level, which again is
a very key focus of Tom and Iqbal's.
Now
on the cost side, once that is fully deployed, we will be able to retire some
of our legacy platforms that will reduce our overall IT infrastructure costs.
In addition to that as we will be part of the Broadridge ecosystem when new
regulatory developments come about, for example, the cost and time to implement
those will be significantly lower, and that will create a cost advantage for
us.
And
then finally, in addition to that, we are looking to make that platform
available to other peers within the market. And as that does take place as
well, we will see an overall reduction in the ongoing cost of running the
platform itself. So we do think that there's quite compelling both revenue
productivity opportunities along with some cost save opportunities.
Javier
Lodeiro, ZKB
This
is Javier Lodeiro from Zurcher Kantonalbank. Thank you, Sergio, for all the
last years, and all the best for your new challenge. I have actually 2
questions. First of all, on the 25th of September, Julius Baer said they were
forced to pay 150 million to the former - well, to Germany, on the case of the
Democratic Republic, and this is a case where it came from the former private
banks UBS sold to Julius Baer back in 2005, and there is apparently a recourse.
And now I wanted to know if you're going to take over the 150 million, and when
we will see that charge either in the third -- in fourth quarter or in the
first quarter?
And then
the second one, my second question relates to the PSP transactions, that real
estate divestiture you did in Geneva as well at the end of September. I see in
your call-out items that you flagged only 64 million. This is on Slide 26 of
the presentation. Is that really the whole amount on the Geneva transaction?
These are on my 2 questions.
Sergio
Ermotti
So
Javier, thanks also to you. In respect of this matter that you mentioned with
Julius Baer. Yes, Julius Baer has notified us their intention to seek
indemnification under the transaction agreement relating to that transaction.
We believe that we have substantial defences to this indemnification claim, and
therefore, as you can see, there is no necessity now and in the foreseeable
future to take any provisions.
Kirt
Gardner
Yes.
Javier, I would only note that if you look at our Note 16, you will not see any
mention of the Julius Baer-related matter.
Javier
Lodeiro, ZKB
So
is it fair to assume that you don't have any litigation reserve for --
specifically for, ranked for this case?
Kirt
Gardner
We
don't talk about our reserves as they relate to specific matters.
Just
in terms of your second question, I would only note that there are a number of
different real estate-related moves that are reflected in 26 that include the
sale of a property in Geneva. But then in addition to that, we've also taken
some lease-related impairments. We've had some write-down in other properties.
Javier
Lodeiro, ZKB
Ok,
thank-you very much.
Tom
Hallett from KBW.
Morning
guys. So
I guess most of my questions have already been asked. But could you just walk
us through how a Democrat win in the U.S. would impact the business? And do you
get the sense that most clients have already repositioned for the likely
outcome of that?
And
then secondly, how sustainable is the current credit provision run rate,
obviously given current more lockdowns. How should we think about the
sensitivity of that over the next quarter or two?
Sergio
Ermotti
Thank
you, Tom. So in respect of -- it's difficult to say how the clients will really
react. It all depends exactly, as I mentioned before, for example, what is the
true intention to move forward, the agenda on the increasing taxes to what
level and exactly for lots that may or may not determine, for example, an
acceleration of of profit taking in a certain position to avoid or optimize
capital gain taxes.
But
also, it depends how a Democrat or a Republican win will determine how money
that will most likely come to a stimulus package, that we believe is going to
come in any case, will be floating to the economy. So I only can tell you what
clients are telling us, that almost two-thirds of them are planning to change
their asset allocation after the election. And that tells you the story in my
point of view. So -- but how they do it, when they do it, it's not 100% clear.
There are also other factors that may determine this. And the second question?
Kirt
Gardner
Yes.
Just in terms of our credit provisioning, I think as you heard from our outlook
statement, we still view our credit loss expense for the fourth quarter to be
markedly below the first half levels. Clearly, if there is between now and the
end of the quarter, a very significant deterioration in overall macroeconomic
outlook and expectations that we might see spikes in unemployment, for example,
as a consequence of more severe lockdowns, we would have to reflect that in any
updates that we would make to our models. And that could very much have an
impact on where we end up for credit loss expense.
However,
at the same time, I would just, importantly, underscore the fact that if you
look at the quality of our portfolio, I think any change across the industry
would still likely impact us less, far less than our peers.
Tom
Hallett, KBW
Ok,
thanks and Sergio: all the best
Sergio
Ermotti
Thank-you
Tom.
Alastair
Ryan, Bank of America Merrill Lynch.
Thank-you,
good morning. And I guess my perspective would be, it's an absolute
pleasure that UBS has avoided blowing up in a bad year, which as a cycle that
really dogged the company back to at least the early 1990s. So I mean you do
deserve the congratulations of everybody on this call.
Looking
forward, now that UBS is in a position to make these choices, which it wasn't
coming out of previous downturns, is there more growth in Wealth Management
because the world is more uncertain? Or is it going to be a process of keeping costs
tight because there's less wealth generation around the world in the next
couple of years?
Sergio
Ermotti
Thank
you, Alastair. I think it's -- you need to do both. Actually, but it's not just
that -- I think in terms of growth, we have 2 opportunities. The first one is,
like in the U.S., we still have room to have a higher and more representative
share of wallet for what we are in the Wealth Management industry. And as you
can see, we continue to execute on that. And I'm sure, over time, we will
improve our growth and trajectory.
Second,
in general, wealth creation is still a theme, so no matter how you look at it,
the wealth management, the asset gathering industry is set to grow twice the
pace of GDP growth in the next decade. No matter how you look at it, which
sources you look at it, they all come more or less to the same conclusion. So
we are well positioned to capture these growth opportunities. But of course,
you can't just pretend that growth is going to come on top of the existing infrastructure
and market dynamics. You will continue to -- we need to continue to work on
creating efficiencies and managing cost, because fees are likely to continue
to - margins are going to continue to be under pressure, right? So you
need to really protect margins by increasing share of wallet by growing faster
than others, but also by recognizing that there's going to be competitive
headwinds. And so in that sense, I'm very positive about the need for investors
to invest assets because of their needs to prepare for their retirements. But
also, in general, wealth creation in the emerging markets and in Asia will
continue to drive the prospects of our industry.
It
looks like we are, we had the last questions here. So again, many thanks for
everything, and I wish you all the best going forward. Thank you.
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. The outbreak of COVID-19 and the measures
being taken globally to reduce the peak of the resulting pandemic have had and
may continue to have a significant adverse effect on global economic activity,
and an adverse effect on the credit profile of some of our clients and other
market participants, which has resulted in and may continue to increase
expected credit loss expense and credit impairments. The unprecedented scale of
the measures to control the COVID-19 outbreak creates significantly greater
uncertainty about forward-looking statements in addition to the factors that
generally affect our businesses, which 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) and leverage ratio
denominator (LRD), liquidity coverage ratio and other financial resources,
including changes in RWA assets and liabilities arising from higher market
volatility and other changes related to the COVID-19 pandemic; (ii) the degree
to which UBS is successful in implementing changes to its businesses to meet
changing market, regulatory and other conditions; (iii) the continuing low or
negative interest rate environment in Switzerland and other jurisdictions; (iv)
developments (including as a result of the COVID-19 pandemic) 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, and changes to national trade policies
on the financial position or creditworthiness of UBS’s clients and
counterparties as well as on client sentiment and levels of activity; (v)
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); (vi) changes in or the implementation of financial legislation and
regulation in Switzerland, the US, the UK, the European Union 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, net
stable funding ratio, liquidity and funding requirements, heightened
operational resilience 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; (vii) 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, 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; (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 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
and UBS’s First Quarter 2020 Report on Form 6K. 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. 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 certain measures that may qualify as Alternative Performance
Measures as defined in the SIX Exchange Directive on Alternative Performance
Measures, under the guidelines published the European Securities Market
Authority (ESMA), or as defined in regulations promulgated by the US Securities
and Exchange Commission (SEC). Please refer to "Alternative Performance
Measures" in the appendix of UBS's Quarterly Report for the third quarter
of 2020 for a list of all measures UBS uses that may qualify as APMs.
©
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: October 20, 2020
UBS (NYSE:UBS)
Historical Stock Chart
From Mar 2024 to Apr 2024
UBS (NYSE:UBS)
Historical Stock Chart
From Apr 2023 to Apr 2024