UBS releases Q2 2017 financial results

UBS delivered strong second quarter results with net profit attributable to shareholders up 14% year on year to CHF 1,174m. Adjusted profit before tax of CHF 1,675m and reported profit before tax of CHF 1,502m were both broadly unchanged. As of 30 June 2017, the Group achieved CHF 1.8bn of annualized net cost savings and is on track to achieve its CHF 2.1bn target by the end of 2017.

Global wealth management delivered 15% adjusted profit before tax growth year over year, on increased client activity, US dollar interest rate rises, higher invested asset levels, further progress on mandate penetration and loan growth. This very strong performance benefited from growth in all revenue lines as well as good cost discipline. The Investment Bank saw strong revenues in Corporate Client Solutions and delivered an annualized adjusted return on attributed equity of 18%, despite low market volatility, which affected Foreign Exchange, Rates and Credit in particular.

Personal & Corporate Banking adjusted profit before tax decreased as expected on lower net interest income in the continued negative interest rate environment, partly offset by higher transaction-based and recurring net fee income. Personal banking had the highest second quarter annualized net new business volume growth in a decade and record net new client acquisition year-to-date. Asset Management’s invested assets reached a nine-year high of CHF 703bn, including strong ex money market net new money of CHF 10bn, and which was mainly into passive strategies. Group annualized adjusted1 return on tangible equity was 11.4%, or 15.9% excluding deferred tax assets.

UBS’s fully applied CET1 capital increased by CHF 0.6bn to CHF 31.9bn, mainly as a result of profits in the quarter. RWA increased by CHF 15bn to CHF 237bn, the majority of which was due to regulatory-driven methodology changes and regulatory inflation, most of which are an advance on increases expected upon the finalization of Basel III rules. The capital position remains strong, with a fully applied CET1 capital ratio of 13.5%, a CET1 leverage ratio of 3.7% and total loss-absorbing capacity of CHF 74bn.

“Considering market conditions, the second quarter results were very good and contributed to a strong first half of the year. Our global wealth management business in particular delivered an excellent performance. The results once again demonstrate the value of our diversified business model, allowing us to grow profitably and sustainably over the cycle and in a variety of market conditions.” Sergio P. Ermotti, Group Chief Executive Officer

Outlook

Improved investor sentiment and enhanced confidence have translated into improvements in wealth management client activity levels. However, the persistence of low volatility levels and seasonality factors may continue to affect overall client activity. In addition, while we expect the global economic recovery to strengthen, geopolitical tensions and macroeconomic uncertainty still pose risks to client sentiment. Low and negative interest rates, particularly in Switzerland and the eurozone, put pressure on net interest margins, which may be partially offset by the effect of a further normalization of US monetary policy. Implementing Switzerland’s new bank capital standards and further changes to national and international regulatory frameworks for banks will result in increased capital requirements, interest and operating costs. UBS is well positioned to mitigate these challenges and benefit from further improvements in market conditions.

Second quarter 2017 performance overview

UBS’s second quarter adjusted profit before tax was CHF 1,675m, and reported profit before tax was CHF 1,502m. Adjustments to reported profit before tax included CHF 258m in net restructuring expenses, a CHF 107m gain on the sale of an investment and CHF 22m of foreign currency translation losses. Net profit attributable to shareholders was CHF 1,174m, with diluted earnings per share of CHF 0.31. Adjusted return on tangible equity was 11.4%, or 15.9% excluding deferred tax assets.

Global wealth management adjusted PBT CHF 1,013m, up 15% YoY

Increased client activity, US dollar interest rate rises, higher invested asset levels, further progress on mandates and lending, and good cost control all supported very strong growth. Net new money was CHF 7.5bn in the second quarter. Mandate and managed account penetration increased by 130 bps from the prior year to 32.3% of invested assets. The loan book increased by 4%. Adjusted net margin increased by 1 bp to 19 bps.

Wealth Management adjusted PBT CHF 691m, up 14% YoY

Performance was driven by higher transaction-based and recurring net fee income, as well as good cost control. Net new money was strong at CHF 13.7bn, despite outflows related to the introduction of fees on euro deposit concentrations and cross-border outflows. Net mandate sales in the quarter were CHF 9.3bn, and mandate penetration increased by 140 bps from the prior year to 28.5% of invested assets. Adjusted1 net margin increased by 1 bp to 27 bps.

Wealth Management Americas adjusted PBT USD 330m, up 17% YoY

Results reflected record recurring net fee income and net interest income. Net new money was negative USD 6.4bn, including outflows of USD 3.3bn associated with seasonal income tax payments and outflows due to lower recruiting in the quarter. Managed account assets increased by 130 bps from the prior year to a record 35.8% of invested assets. Advisor productivity remained industry-leading for both revenues and invested assets. Adjusted net margin was unchanged at 11 bps.

Personal & Corporate Banking adjusted PBT CHF 379m, down 18% YoY

Higher transaction-based and recurring net fee income was more than offset by lower net interest income, mainly as a result of the continued low interest rate environment. Net credit loss expense was CHF 28m, compared with a CHF 2m recovery in the prior-year quarter. Annualized net new business volume growth for personal banking was 4.5%, the highest second quarter in a decade.

Asset Management adjusted PBT CHF 133m, down 10% YoY

Higher performance fees, primarily driven by the alternatives business, were more than offset by lower net management fees, which reflected margin compression due to client shifts from active to passive strategies. Invested assets reached a nine-year high of CHF 703bn. Net new money, excluding money market flows, was CHF 10.2bn, mainly into passive strategies.

Investment Bank adjusted PBT CHF 419m, down 6% YoY

Revenues increased in Corporate Client Solutions, mostly in equity capital markets, as well as in Equities. These increases, along with continued cost control, were more than offset by a decrease in Foreign Exchange, Rates and Credit revenues, mainly reflecting lower client activity and low market volatility. The annualized adjusted return on attributed equity was 18%.

Corporate Center – Services recorded an adjusted loss before tax of CHF 137m. Group Asset and Liability Management adjusted loss before tax was CHF 81m. Non-core and Legacy Portfolio posted an adjusted loss before tax of CHF 51m.

First half of 2017 performance overview

UBS’s first half of 2017 adjusted profit before tax was CHF 3,609m, and reported profit before tax was CHF 3,192m. Adjustments to reported profit before tax included CHF 502m in net restructuring expenses, a CHF 107m gain on the sale of an investment and CHF 22m of foreign currency translation losses. Net profit attributable to shareholders was CHF 2,443m, with diluted earnings per share of CHF 0.64. Adjusted return on tangible equity was 12.0%, or 16.6% excluding deferred tax assets.

Global wealth management adjusted PBT CHF 2,063m, up 17% YoY

Increased client activity, US dollar interest rate rises, higher invested asset levels, further progress on mandates and lending, and good cost control all supported very strong growth. Net new money was CHF 28.1bn. Mandate and managed account penetration increased by 130 bps from the prior year to 32.3% of invested assets. The loan book increased by 4%. Adjusted net margin increased by 1 bp to 19 bps.

Wealth Management adjusted PBT CHF 1,418m, up 14% YoY

Performance was driven by higher transaction-based income and good cost control. Annualized net new money growth was strong at 6.6% with CHF 32.3bn of net inflows, despite outflows related to the introduction of fees on euro deposit concentrations and cross-border outflows. Net mandate sales were CHF 24.4bn, and mandate penetration increased by 140 bps from the prior year to 28.5% of invested assets. Adjusted net margin increased by 1 bp to 28 bps.

Wealth Management Americas adjusted PBT USD 654m, up 25% YoY

Results reflected record net interest income and recurring net fee income. Net new money outflows were USD 4.4bn, as a result of lower recruiting and tax-related outflows in the second quarter. Managed account penetration increased by 130 bps from the prior year to a record 35.8% of invested assets. Adjusted net margin improved by 1 bp to 11 bps.

Personal & Corporate Banking adjusted PBT CHF 816m, down 8% YoY

Higher transaction-based and recurring net fee income was more than offset by lower net interest income, mainly as a result of the continued low interest rate environment. Net credit loss expense was CHF 21m, compared with a CHF 2m recovery in the first half of 2016. Annualized net new business volume growth for personal banking was the highest in a decade at 5.6%, with the highest net new client acquisition on record.

Asset Management adjusted PBT CHF 256m, down 1% YoY

Higher performance fees, driven by the alternatives business, were more than offset by lower net management fees, which reflected margin compression due to client shifts from active to passive strategies. Net new money, excluding money market flows, was the highest first half figure for over a decade at CHF 29.9bn, with strong inflows into passive strategies.

Investment Bank adjusted PBT CHF 976m, up 19% YoY

Revenues increased in Corporate Client Solutions, driven by strong equity capital markets and higher advisory revenues, as well as in Equities. These increases, along with continued cost control, were partly offset by a decrease in Foreign Exchange, Rates and Credit revenues, mainly reflecting lower client activity and low market volatility. The adjusted return on attributed equity was 21%.

Corporate Center – Services recorded an adjusted loss before tax of CHF 344m. Group Asset and Liability Management recorded an adjusted loss before tax of CHF 18m. Non-core and Legacy Portfolio posted an adjusted loss before tax of CHF 142m.

Business highlights

UBS raises USD 325m for Rise, the world’s largest impact investment fund

In the second quarter, UBS successfully raised USD 325m for the Rise Fund, a unique private equity impact investment that is committed to achieving social and environmental impact alongside financial returns. The fund focuses on seven sectors aligned with the UN Sustainable Development Goals (UN SDGs). UBS has committed to raise USD 5bn over five years for impact investments related to the UN SDGs.

Innovation: The future of finance

Following its success in 2015, UBS launched another Future of Finance Challenge this quarter. The competition invites the world’s emerging and established fintechs to showcase innovations that can transform the world of finance and banking. This year’s competition focuses on four challenges: Digital Ecosystem, RegTech and LegalTech, Investment Banking 4.0 and Wealth in the Digital Age. In collaboration with the Investment Bank, Tradelegs, one of the 2015 finalists, recently developed the first investment solution for institutional clients that employs adaptive artificial intelligence to suggest strategies through structured products and managed accounts.

Asset Management granted Private Fund Management license in China

As the first Qualified Domestic Limited Partner license-holder to receive a Private Fund Management license, Asset Management was recently authorized to provide onshore fixed income, equity, and multi-asset private funds to institutional and high net worth investors in China, which will also benefit Wealth Management. The license represents a significant milestone in UBS’s progress in China, one of the Group’s top long-term growth opportunities.

UBS research climbs to the top in global investor rankings

In the rankings published by Institutional Investor in the second quarter, UBS Research reached the number two position for global equities. This represents a rise of five places in three years. The rankings are recognition of UBS Evidence Lab’s distinctive approach to question-driven, primary research. The Lab is the largest and most-experienced sell-side team of primary research professionals in the world with experts in geospatial, pricing, social media, market research, and data science. It works to uncover new evidence that addresses pivotal questions from clients, giving them an edge in decision-making. UBS was also ranked number one overall for corporate access in EMEA.

Re-disseminated by The Asian Banker

Diary of Activities
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