UBS: 2019 Net Profit USD 4.3bn, 12.4% Return on CET1 Capital

Regulatory News:

UBS (NYSE:UBS) (SWX:UBSN) delivered solid full-year 2019 results in mixed market conditions. Reported profit before tax (PBT) was USD 5,577m, down 7% year over year (YoY), and adjusted PBT decreased slightly to USD 6,035m. The Group's adjusted cost/income ratio was 78.9% (down 51bps YoY), with a 3% decrease in operating income and a 4% decrease in operating expenses (both adjusted). Net profit attributable to shareholders was USD 4,304m, down 5% YoY. Reported return on CET1 capital² (RoCET1) was 12.4%. Diluted earnings per share (EPS) were USD 1.14, and tangible book value per share (TBVPS) increased by 6% YoY to USD 13.29.

"We finished a solid year with our best fourth quarter adjusted PBT since 2010. Clients continue to turn to UBS for high-quality advice and we now manage USD 3.6 trillion of their assets, up by more than 900 billion over the last four years. We made progress on our strategic initiatives, reduced operating expenses by 4%, and our capital position remains strong. We again delivered attractive returns to shareholders, with an increased dividend, complemented by share buybacks. We are reaffirming our growth ambitions in GWM and a strong return on CET1 capital."
Sergio P. Ermotti, Group Chief Executive Officer

Global Wealth Management (GWM) adjusted PBT was USD 3,466m; invested assets reached a new high of USD 2,635bn; loans increased by 3% YoY; adjusted operating expenses decreased by 3%. Personal & Corporate Banking adjusted PBT was USD 1,458m; highest transaction-based (excluding a fee paid to GWM for a shift in business volume) and recurring net fee income in a decade; net new business volume growth in personal banking was very strong at 4.6% (4.7% in CHF). Asset Management adjusted PBT was USD 565m, the best year since 2015, with higher operating income YoY; invested assets rose to a record USD 903bn. The Investment Bank delivered adjusted PBT of USD 1,061m; adjusted RoAE was 8.6%. Corporate Center adjusted loss before tax was USD 515m.

UBS’s capital position remains very strong, with a CET1³ capital ratio of 13.7%, a CET1 leverage ratio of 3.9%, a tier 1 leverage ratio⁴ of 5.7%, and total loss-absorbing capacity of USD 90bn.

For 2019, the Board of Directors intends to propose a dividend to UBS Group AG shareholders of USD 0.73^{5, 6} per share, an increase on the prior year. UBS repurchased USD 0.8bn of its shares under its share repurchase program during 2019. The total pay-out ratio for dividends and share repurchases combined was 80% for 2019.

For the first half of 2020, UBS intends to repurchase around USD 450m of shares, completing its current CHF 2bn share repurchase program. Any further buybacks will be assessed in the second half of 2020, considering business conditions and any idiosyncratic developments.

Outlook

Stimulus measures and easing of monetary policy by central banks contributed to a strong performance in financial markets in the fourth quarter and are likely to prevail. A favorable credit environment and a partial resolution of trade disputes should mitigate slowing global economic growth.

While the macroeconomic and geopolitical situation remains uncertain, for the first quarter we expect more typical seasonality, supporting earnings. Clients are more active, which should lead to an improvement in transaction-related revenues. Higher asset prices should have a positive effect on recurring fee income in our asset gathering businesses. Low and persistently negative interest rates and expectations of continuing easy monetary policy will continue to provide some headwinds to net interest income.

As we execute on our strategy, we are balancing investments to take advantage of opportunities for growth across our businesses and regions, while managing for efficiency. We remain committed to delivering on our financial targets, creating further value through even closer collaboration across all divisions to drive sustainable long-term value for our clients and shareholders.

Fourth quarter 2019 performance overview

UBS’s fourth quarter adjusted¹ PBT was USD 1,212m (up 153% YoY), and reported PBT was USD 928m (up 93% YoY). Adjusted figures exclude USD 146m of restructuring expenses, USD 110m impairment of goodwill, and a loss of USD 29m from properties held for sale. The adjusted cost/income ratio was 82.8%. Net profit attributable to shareholders was USD 722m (up 129% YoY), with diluted earnings per share of USD 0.19 (up 135% YoY). Reported return on CET1 capital² was 8.2%.

Global Wealth Management (GWM) adjusted PBT USD 787m, +160% YoY
Recurring net fee income decreased due to margin compression and moves into lower-margin products. Transaction-based income increased by 26%, or 14% excluding a fee paid by Personal & Corporate Banking (see below), while net interest income decreased by 3%. Adjusted operating expenses decreased, mainly as the fourth quarter of 2018 included USD 505m in litigation expenses; excluding litigation in both periods, adjusted operating expenses increased by 3%. Mandate penetration was 34.3% of invested assets. Net new loans drove an increase in lending balance of 2% sequentially. The adjusted cost/income ratio was 80.8%. Net new money outflows of USD 4.7bn were driven by the Americas. Adjusted net margin was 12bps.

Personal & Corporate Banking (P&C) adjusted PBT CHF 309m, +2% YoY
Transaction-based income included a CHF 73m fee paid to GWM for the shift in business volume. Excluding this fee, transaction-based and recurring net fee income increased, more than offsetting lower net interest income. Adjusted operating expenses decreased, mainly due to lower litigation expenses. The adjusted cost/income ratio was 64.9%, or 59.9% excluding the aforementioned fee. Business momentum remained strong, with Personal Banking net new business volume growth of 2.8%. Net interest margin was 149bps.

Asset Management (AM) adjusted PBT USD 187m, +48% YoY
Net management fees increased by 4%, reflecting higher average invested assets. Performance fees increased by USD 68m, reflecting both annual performance fees on certain larger mandates recognized in the fourth quarter of 2019 on the back of strong investment performance and a constructive market environment. This led to the fifth consecutive quarter of YoY growth in adjusted PBT. The adjusted cost/income ratio improved to 66.2%. Invested assets rose to a record USD 903bn, and net new money inflows excluding money markets were USD 4.6bn.

Investment Bank (IB) adjusted PBT USD 198m, vs. (5)m in 4Q18
Improvements across almost all income lines from a difficult fourth quarter of 2018 drove an 11% increase in operating income. Corporate Client Solutions contributed the greatest increase at 18%, despite a reduction in global fee pools. FX, Rates & Credit increased by 16%, or 41% excluding the USD 53m revenues in the fourth quarter of 2018 for the rebalancing of the Group’s currency exposures in connection with the change in functional and presentation currencies; Equities increased by 2%. Adjusted operating expenses decreased, mainly on lower personnel costs. The adjusted cost/income ratio was 87.9%. Adjusted return on attributed equity was 6.4%. Reported results included a USD 110m goodwill charge, which was treated as an adjusting item, and takes the goodwill in the Investment Bank to nil as of 31 December 2019.

Corporate Center adjusted loss before tax was USD 273m.

2019 performance overview

UBS’s full-year adjusted¹ PBT was USD 6,035m (down 0.5% YoY), and reported PBT was USD 5,577m (down 7% YoY). Adjusted figures for 2019 exclude USD 284m of restructuring expenses, USD 110m impairment of goodwill, USD 35m of net foreign currency translation losses, and a loss of USD 29m from properties held for sale. The adjusted cost/income ratio was 78.9% (down 51bps YoY). Net profit attributable to shareholders was USD 4,304m (down 5% YoY), with diluted earnings per share of USD 1.14 (down 3% YoY). Reported return on CET1 capital² was 12.4%.

Global Wealth Management (GWM) adjusted PBT USD 3,466m, +4% YoY
Recurring net fee income decreased due to margin compression and moves into lower-margin products. Transaction-based income rose 3%, or 0.4% excluding a fee paid by Personal & Corporate Banking (see below), while net interest income reduced by 4%. Mandate penetration increased to 34.3% of invested assets. Loans grew by 3%, mainly driven by the Americas. Adjusted operating expenses decreased by 3%, mainly due to lower litigation expenses, as well as a decrease in personnel expenses. The adjusted cost/income ratio was 78.7%. Net new money was USD 31.6bn. Adjusted net margin was 14bps.

Personal & Corporate Banking (P&C) adjusted PBT CHF 1,450m, +3% YoY
Transaction-based income included a CHF 73m fee paid to GWM for the shift in business volume. Excluding this fee, transaction-based and recurring net fee income increased to the highest level in a decade, more than offsetting lower net interest income. Adjusted operating expenses decreased on lower litigation expenses. The adjusted cost/income ratio was 60.4%, or 59.2% excluding the aforementioned fee. Business momentum remained strong, with Personal Banking net new business volume growth of 4.7%. Net interest margin was 150bps.

Asset Management (AM) adjusted PBT USD 565m, +17% YoY
Net management fees increased by USD 6m, while performance fees doubled. The adjusted cost/income ratio improved to 70.8%. Invested assets rose to a record USD 903bn, and net new money inflows excluding money markets were USD 12.6bn.

Investment Bank (IB) adjusted PBT USD 1,061m, (37%) YoY
Challenging market conditions, which were most pronounced in the first quarter of 2019, affected the IB’s revenues. FX, Rates & Credit increased by 9% YoY when excluding net income of around USD 100m mainly related to the recognition of previously deferred day-1 profits in the second quarter of 2018 and the above-mentioned USD 53m for the rebalancing of the Group’s currency exposures. Adjusted operating expenses decreased by 3%. The adjusted cost/income ratio was 85.1%. Adjusted return on attributed equity was 8.6%. Reported results included a USD 110m goodwill charge in the fourth quarter of 2019, which was treated as an adjusting item, and takes the goodwill in the Investment Bank to nil.

Corporate Center adjusted loss before tax was USD 515m.

2020-2022: Driving higher and superior returns

UBS aims to drive higher and superior returns by growing and leveraging its unique, integrated and complementary business portfolio and geographic footprint.

In connection with the completion of UBS's annual planning process, it is updating its performance targets and capital and resource guidance effective in 2020.

Targets, capital and resource guidance 2020-2022 (on a reported basis):

UBS intends to increase its dividend per share by USD 0.01 per year and return incremental capital through share repurchases.

Commitment to sustainable performance

UBS is committed to creating long-term positive value for its clients, employees, investors and society and the firm made substantial progress on this commitment in 2019. This is illustrated by recognition UBS has received throughout the year for its commitment to improving performance under ESG criteria and for its efforts in offering clients sustainable finance products and services.

Recognized leader in sustainability
The Dow Jones Sustainability Index, the most widely recognized sustainability rating, confirmed UBS as Diversified Financial Services and Capital Markets industry group leader for the fifth year running. MSCI ESG Research maintained UBS's ‘AA’ rating, placing it in the top three of its primary peer group. Sustainalytics, the ESG ratings and research analysts, ranked UBS as an industry leader.

Strengthening the focus on sustainable finance
Sustainable finance has long been a firm-wide priority. UBS continues to help its clients respond to growing interest in navigating the risks and opportunities from climate change and a range of 21st century risks. For instance, in Global Wealth Management, clients further invested into UBS's multi-asset Sustainable Investing solutions, which grew significantly to more than USD 9bn in invested assets, making it our fastest growing mandate offering. In Asset Management, assets invested in Sustainable Investment products similarly enjoyed very strong growth from USD 17bn to USD 39bn. UBS is committed to offering choice to its clients to mobilize capital and manage risks.

For this year’s World Economic Forum, UBS showcases its Climate Aware framework in a white paper: www.ubs.com/wef2020

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.

¹ Adjusted results are non-GAAP financial measures defined by SEC regulations. Refer to the “Performance of our business divisions and Corporate Center – reported and adjusted“ table in this news release.
² Return on CET1 capital. Net profit attributable to shareholders (annualized as applicable) divided by average common equity tier 1 capital.
³ Equity attributable to shareholders decreased by USD 2bn during the fourth quarter of 2019, of which USD 2bn related to other comprehensive income from defined benefit plans, predominantly reflecting a reversal of the Swiss pension plan’s net defined benefit asset that was initially recognized in the third quarter of 2019. This had no significant impact on CET1 capital.
⁴ Going concern leverage ratio under Swiss SRB rules applicable as of 1 January 2020.
⁵ Shareholders whose shares are held through SIX (ISIN CH0244767585) will receive dividends in Swiss francs, based on a published exchange rate calculated to five decimal places immediately before the ex-dividend date. Shareholders holding shares through DTC (ISIN: CH0244767585; CUSIP: H42097107) will be paid dividends in US dollars.
⁶ Subject to approval by shareholders at the Annual General Meeting scheduled for 29 April 2020, the dividend will be paid on 7 May 2020 to shareholders of record as of 6 May 2020. The ex-dividend date will be 6 May 2020. As newly required under Swiss tax law, 50% of the dividend will be paid out of retained earnings and the balance will be paid out capital contribution reserves. Dividends paid out of capital contribution reserves are not subject to Swiss withholding tax. The portion of the dividend paid out of retained earnings will be subject to a 35% Swiss withholding tax. For US federal income tax purposes, we expect that the dividend will be paid out of current or accumulated earnings and profits.

UBS’s fourth quarter 2019 report, news release and slide presentation will be available from 06:45 CET on Tuesday, 21 January 2020, at www.ubs.com/quarterlyreporting.

UBS will hold a presentation of its fourth quarter 2019 results on Tuesday, 21 January 2020. The results will be presented by Sergio P. Ermotti, Group Chief Executive Officer, Kirt Gardner, Group Chief Financial Officer, Martin Osinga, Investor Relations, and Mark Hengel, Group External Communications.

Time

• 09:00–11:00 CET
• 08:00–10:00 GMT
• 03:00–05:00 US EST

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) and leverage ratio denominator (LRD), including to counteract regulatory-driven increases, liquidity coverage ratio and other financial resources, and the degree to which UBS is successful in implementing changes to its businesses to meet changing market, regulatory and other conditions; (ii) the continuing low or negative interest rate environment in Switzerland and other jurisdictions, 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, 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; (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, including Interest Rate Benchmark Reform, 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; (v) the degree to which UBS is successful in implementing further changes to its legal structure to improve its resolvability and meet related regulatory requirements and the potential need to make further changes to the legal structure or booking model of UBS Group in response to legal and regulatory requirements, proposals in Switzerland and other jurisdictions for mandatory structural reform of banks or systemically important institutions or to other external developments, and the extent to which such changes will have the intended effects; (vi) 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; (vii) the uncertainty arising from the UK’s exit from the EU; (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 regulations or new enforcement of existing standards, including recently enacted and proposed measures to impose new and enhanced duties when interacting with customers and in the execution and handling of customer transactions; (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, 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; (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; (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 or other cybersecurity disruptions, and systems failures; (xvii) restrictions on the ability of UBS Group AG to make payments or distributions, including due to restrictions on the ability of its subsidiaries to make loans or distributions, directly or indirectly, or, in the case of financial difficulties, due to the exercise by FINMA or the regulators of UBS’s operations in other countries of their broad statutory powers in relation to protective measures, restructuring and liquidation proceedings; (xviii) the degree to which changes in regulation, capital or legal structure, financial results or other factors may affect UBS’s ability to maintain its stated capital return objective; and (xix) the effect that these or other factors or unanticipated events may have on our reputation and the additional consequences that this may have on our business and performance. The sequence in which the factors above are presented is not indicative of their likelihood of occurrence or the potential magnitude of their consequences. Our business and financial performance could be affected by other factors identified in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2018. 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.

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 adjusted results are calculated on the basis of unrounded figures. Information about absolute changes between reporting periods, which is provided in text and which can be derived from figures displayed in the tables, is calculated on a rounded basis.

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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