UBS: 2Q17 Net Profit up 14% YoY to CHF 1.2bn

UBS: 2Q17 Net Profit up 14% YoY to CHF 1.2bn

Adjusted ¹ profit before tax CHF 1.7bn; diluted EPS CHF 0.31

CHF 1.0bn adjusted ¹ profit before tax in global wealth management, up 15% YoY

Adjusted ¹ return on tangible equity 11.4%, 15.9% excluding DTAs ²

First half 2017 adjusted ¹ profit before tax CHF 3.6bn, up 19% YoY; net profit attributable to shareholders of CHF 2.4bn, up 40% YoY; diluted EPS CHF 0.64

Fully applied CET1 capital ratio 13.5% and CET1 leverage ratio 3.7%

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

Regulatory News:

UBS (NYSE:UBS) (SWX:UBSN) / ISIN: CH0024899483 delivered strong second quarter results with net profit attributable to shareholders up 14% year on year to CHF 1,174m. Adjusted¹ 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% adjusted¹ 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 adjusted¹ return on attributed equity of 18%, despite low market volatility, which affected Foreign Exchange, Rates and Credit in particular. Personal & Corporate Banking adjusted¹ 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.²

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.

Information in this news release is presented for UBS Group AG on a consolidated basis unless otherwise specified. Financial information for UBS AG (consolidated) does not differ materially from UBS Group AG (consolidated) and a comparison between UBS Group AG (consolidated) and UBS AG (consolidated) is provided at the end of this news release.

Second quarter 2017 performance overview

UBS’s second quarter adjusted¹ 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. Adjusted¹ return on tangible equity was 11.4%, or 15.9% excluding deferred tax assets.²

Global wealth management adjusted ¹ 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%. Adjusted¹ net margin increased by 1 bp to 19 bps.

Wealth Management adjusted ¹ 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 ¹ 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. Adjusted¹ net margin was unchanged at 11 bps.

Personal & Corporate Banking adjusted ¹ 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 ¹ 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 ¹ 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 adjusted¹ return on attributed equity was 18%.

Corporate Center – Services recorded an adjusted¹ loss before tax of CHF 137m. Group Asset and Liability Management adjusted¹ loss before tax was CHF 81m. Non-core and Legacy Portfolio posted an adjusted¹ loss before tax of CHF 51m.

First half of 2017 performance overview

UBS’s first half of 2017 adjusted¹ 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. Adjusted¹ return on tangible equity was 12.0%, or 16.6% excluding deferred tax assets.²

Global wealth management adjusted ¹ 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%. Adjusted¹ net margin increased by 1 bp to 19 bps.

Wealth Management adjusted ¹ 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. Adjusted¹ net margin increased by 1 bp to 28 bps.

Wealth Management Americas adjusted ¹ 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. Adjusted¹ net margin improved by 1 bp to 11 bps.

Personal & Corporate Banking adjusted ¹ 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 ¹ 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 ¹ 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 adjusted¹ return on attributed equity was 21%.

Corporate Center – Services recorded an adjusted¹ loss before tax of CHF 344m. Group Asset and Liability Management recorded an adjusted¹ loss before tax of CHF 18m. Non-core and Legacy Portfolio posted an adjusted¹ 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.

¹ Refer to the “Adjusted results“ paragraph at the end of this news release.
² Excludes any net deferred tax expense / benefit from net profit attributable to shareholders and excludes any deferred tax assets that do not qualify as CET1 capital from tangible equity.

UBS’s second quarter 2017 report, news release and slide presentation will be available from 06:00 CEST on Friday, 28 July 2017, at www.ubs.com/quarterlyreporting .

UBS will hold a presentation of its second quarter 2017 results on Friday, 28 July 2017. The results will be presented by Sergio P. Ermotti, Group Chief Executive Officer, Kirt Gardner, Group Chief Financial Officer, Caroline Stewart, Global Head of Investor Relations, and Hubertus Kuelps, Group Head of Communications & Branding.

Time

• 09:30–11:30 CEST

• 08:30–10:30 BST

• 03:30–05:30 US EDT

Audio webcast

The presentation for analysts can be followed live on www.ubs.com/quarterlyreporting with a simultaneous slide show.

Webcast playback

An audio playback of the results presentation will be made available at www.ubs.com/investors later in the day.

Cautionary Statement Regarding Forward-Looking Statements

This news release contains statements that constitute “forward-looking statements,” including but not limited to management’s outlook for UBS’s financial performance and statements relating to the anticipated effect of transactions and strategic initiatives on UBS’s business and future development. While these forward-looking statements represent UBS’s judgments and expectations concerning the matters described, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from UBS’s expectations. These factors include, but are not limited to: (i) the degree to which UBS is successful in the ongoing execution of its strategic plans, including its cost reduction and efficiency initiatives and its ability to manage its levels of risk-weighted assets (RWA), including to counteract regulatory-driven increases, and leverage ratio denominator, liquidity coverage ratio and other financial resources, and the degree to which UBS is successful in implementing changes to its wealth management businesses to meet changing market, regulatory and other conditions; (ii) continuing low or negative interest rate environment, developments in the macroeconomic climate and in the markets in which UBS operates or to which it is exposed, including movements in securities prices or liquidity, credit spreads, and currency exchange rates, and the effects of economic conditions, market developments, and geopolitical tensions on the financial position or creditworthiness of UBS’s clients and counterparties as well as on client sentiment and levels of activity; (iii) changes in the availability of capital and funding, including any changes in UBS’s credit spreads and ratings, as well as availability and cost of funding to meet requirements for debt eligible for total loss-absorbing capacity (TLAC); (iv) changes in or the implementation of financial legislation and regulation in Switzerland, the US, the UK and other financial centers that may impose, or result in, more stringent capital, TLAC, leverage ratio, liquidity and funding requirements, incremental tax requirements, additional levies, limitations on permitted activities, constraints on remuneration, constraints on transfers of capital and liquidity and sharing of operational costs across the Group or other measures, and the effect these would have on UBS’s business activities; (v) uncertainty as to the extent to which the Swiss Financial Market Supervisory Authority (FINMA) will confirm limited reductions of gone concern requirements due to measures to reduce resolvability risk; (vi) the degree to which UBS is successful in implementing further changes to its legal structure to improve its resolvability and meet related regulatory requirements, including changes in legal structure and reporting required to implement US enhanced prudential standards, completing the implementation of a service company model, and the potential need to make further changes to the legal structure or booking model of UBS Group in response to legal and regulatory requirements, to proposals in Switzerland and other jurisdictions for mandatory structural reform of banks or systemically important institutions or to other external developments, and the extent to which such changes will have the intended effects; (vii) the uncertainty arising from the timing and nature of the UK exit from the EU and the potential need to make changes in UBS’s legal structure and operations as a result of it; (viii) changes in UBS’s competitive position, including whether differences in regulatory capital and other requirements among the major financial centers will adversely affect UBS’s ability to compete in certain lines of business; (ix) changes in the standards of conduct applicable to our businesses that may result from new regulation or new enforcement of existing standards, including recently enacted and proposed measures to impose new and enhanced duties when interacting with customers and in the execution and handling of customer transactions; (x) the liability to which UBS may be exposed, or possible constraints or sanctions that regulatory authorities might impose on UBS, due to litigation, contractual claims and regulatory investigations, including the potential for disqualification from certain businesses or loss of licenses or privileges as a result of regulatory or other governmental sanctions, as well as the effect that litigation, regulatory and similar matters have on the operational risk component of our RWA; (xi) the effects on UBS’s cross-border banking business of tax or regulatory developments and of possible changes in UBS’s policies and practices relating to this business; (xii) UBS’s ability to retain and attract the employees necessary to generate revenues and to manage, support and control its businesses, which may be affected by competitive factors including differences in compensation practices; (xiii) changes in accounting or tax standards or policies, and determinations or interpretations affecting the recognition of gain or loss, the valuation of goodwill, the recognition of deferred tax assets and other matters; (xiv) UBS's ability to implement new technologies and business methods, including digital services and technologies and ability to successfully compete with both existing and new financial service providers, some of which may not be regulated to the same extent; (xv) limitations on the effectiveness of UBS’s internal processes for risk management, risk control, measurement and modeling, and of financial models generally; (xvi) the occurrence of operational failures, such as fraud, misconduct, unauthorized trading, financial crime, cyberattacks, and systems failures; (xvii) restrictions on the ability of UBS Group AG to make payments or distributions, including due to restrictions on the ability of its subsidiaries to make loans or distributions, directly or indirectly, or, in the case of financial difficulties, due to the exercise by FINMA or the regulators of UBS’s operations in other countries of their broad statutory powers in relation to protective measures, restructuring and liquidation proceedings; (xviii) the degree to which changes in regulation, capital or legal structure, financial results or other factors, including methodology, assumptions and stress scenarios, may affect UBS’s ability to maintain its stated capital return objective; and (xix) the effect that these or other factors or unanticipated events may have on our reputation and the additional consequences that this may have on our business and performance. The sequence in which the factors above are presented is not indicative of their likelihood of occurrence or the potential magnitude of their consequences. Our business and financial performance could be affected by other factors identified in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2016. 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.

Adjusted results

In addition to reporting our results in accordance with International Financial Reporting Standards (IFRS), we report adjusted results that exclude items that management believes are not representative of the underlying performance of our businesses. Such adjusted results are non-GAAP financial measures as defined by SEC regulations. For the purpose of determining adjusted results for the second quarter of 2017, we excluded a gain of CHF 107m on sale of financial assets available for sale, net foreign currency translation losses of CHF 22m and net restructuring expenses of CHF 258m. For the second quarter of 2016, we excluded a gain of CHF 123m on sale of financial assets available for sale, gains on sales of real estate of CHF 120m, net foreign currency translation losses of CHF 26m, losses on sales of subsidiaries and businesses of CHF 23m and net restructuring expenses of CHF 377m.

For the purpose of determining adjusted results for the first half of 2017, we excluded a gain of CHF 107m on sale of financial assets available for sale, net foreign currency translation losses of CHF 22m and net restructuring expenses of CHF 502m. For the first half of 2016, we excluded a gain of CHF 123m on sale of financial assets available for sale, gains on sales of real estate of CHF 120m, net foreign currency translation losses of CHF 149m, losses on sales of subsidiaries and businesses of CHF 23m and net restructuring expenses of CHF 642m.

Rounding

Numbers presented throughout this news release may not add up precisely to the totals provided in the tables and text. Percentages, percent changes and absolute variances are calculated on the basis of rounded figures displayed in the tables and text and may not precisely reflect the percentages, percent changes and absolute variances that would be calculated on the basis of figures that are not rounded.

Tables

Within tables, blank fields generally indicate that the field is not applicable or not meaningful, or that information is not available as of the relevant date or for the relevant period. Zero values generally indicate that the respective figure is zero on an actual or rounded basis. Percentage changes are presented as a mathematical calculation of the change between periods.

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