Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- UBS Group AG (UBS, Financial) reported a strong first-half performance with a net profit of $2.9 billion and an underlying PBT of $4.7 billion.
- The company maintained a robust capital position with a CET1 capital ratio of 14.9% and total loss-absorbing capacity of around $200 billion.
- UBS Group AG (UBS) successfully captured nearly half of its targeted gross cost savings and made significant progress in addressing Credit Suisse's legacy legal issues.
- The investment bank saw the highest second quarter on record, with substantial market share gains in global banking.
- UBS Group AG (UBS) achieved $27 billion in net new assets in global wealth management, demonstrating strong client trust and engagement.
Negative Points
- The integration of Credit Suisse remains a complex and ongoing challenge, with a significant amount of work still required to restore profitability to pre-acquisition levels.
- Higher interest rates, increased regulatory and liquidity requirements, and a changing macroeconomic outlook are impacting the pricing of new credit.
- The company faces heightened market volatility due to ongoing geopolitical tensions and anticipation ahead of US elections.
- UBS Group AG (UBS) experienced a decline in net interest income and transactional activity in global wealth management.
- The non-core and legacy business reported a pretax loss of $80 million, with expectations of an underlying pretax loss of around $1 billion in the second half of the year.
Q & A Highlights
Q: Can you clarify when you expect net interest income (NII) to bottom out?
A: Based on the current forward curve, we expect NII to bottom out around mid-2025. However, in a lower interest rate environment, we anticipate significant offsets and tailwinds, such as increased transaction revenues and recurring fees from mandate sales. (Todd Tuckner, CFO)
Q: Regarding the non-core and legacy (NCL) business, should we assume that active management is largely complete by the end of this year?
A: While we have made significant progress, we cannot extrapolate the current pace of active management. We continue to take economic decisions as opportunities arise. The uncertainty delta has narrowed significantly, but our guidance remains that the P&L drag will persist into 2026. (Todd Tuckner, CFO)
Q: On the cost savings front, you have achieved 55% of your target earlier than expected. Which division contributed most to this?
A: The majority of the cost savings have been driven by the NCL business, primarily through active rundown of positions and restructuring. We expect the core business divisions to contribute more significantly to cost reductions in the latter half of the integration agenda. (Todd Tuckner, CFO)
Q: Can you provide an update on the profitability drag from the NCL business?
A: We are pleased with the progress so far, but our guidance remains that the P&L drag will be around $2 billion by the end of 2025 and $1 billion by the end of 2026. We will update this guidance as we get closer to those dates. (Todd Tuckner, CFO)
Q: What are your assumptions for loan and deposit growth in the Swiss business and GWM for the second half of the year?
A: We expect loans to come in slightly due to balance sheet optimization efforts. Deposits in GWM are expected to remain roughly flat, while P&C deposits are expected to grow. We anticipate the impact of deposit mix shifts to taper as interest rates come down. (Todd Tuckner, CFO)
Q: How do you see the path for underlying return on core Tier 1 capital through 2024 and 2025?
A: We initially guided for a mid-single-digit return for 2024 and mid- to high-single digits for 2025. Given our strong performance in the first half of 2024, we are comfortably ahead of our target for this year. We will provide an updated outlook later this year. (Todd Tuckner, CFO)
Q: What is your outlook for the Investment Banking division given recent market volatility?
A: Despite short-term market volatility, we have a compelling pipeline of mandates. Our momentum in winning mandates remains strong, and we are confident in our ability to execute in a normalized market environment. (Sergio Ermotti, CEO)
Q: Can you provide more details on the impact of Basel IV on your risk-weighted assets (RWA)?
A: We estimate a 5% increase in RWA due to Basel IV, with $15 billion in the core business and $10 billion in non-core. We will continue to work down the NCL portfolio to mitigate this impact. (Todd Tuckner, CFO)
Q: How do you plan to address the competitive disadvantage from Switzerland's early adoption of FRTB?
A: While it presents a short-term competitive disadvantage, we believe it is manageable. We remain confident that other jurisdictions will converge to Basel III full implementation, ensuring a level playing field. (Sergio Ermotti, CEO)
Q: What are your expectations for the cost/income ratio in the Americas GWM business?
A: We are focused on achieving a mid-teens profit margin over the next couple of years. This will contribute to our group target of a less than 70% cost/income ratio by the end of 2026. (Todd Tuckner, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
