Q1 2024 Earnings Summary
- Successful Integration of Credit Suisse's Investment Banking Teams Leading to Strong Momentum in Winning Mandates: UBS reported that the investment in integrating Credit Suisse's teams into its Investment Bank is showing promising results. The transferred employees are fully engaged and productive, with a great momentum in winning mandates, indicating a promising trajectory of growth if market conditions remain favorable.
- Strong Performance and Structural Growth in Transaction Fees within Global Wealth Management (GWM): UBS experienced a significant increase in transaction fees in its GWM division, driven by structural factors such as the aligned product offerings between UBS and the former Credit Suisse and joint approaches to clients, especially in the U.S. This suggests that the strong performance in transaction fees is not just transitory but could continue moving forward.
- Effective Unwinding of Non-Core Assets Enhancing Capital Efficiency: UBS has made substantial progress in unwinding non-core assets, particularly those acquired from Credit Suisse, achieving sales at or above book value where possible. This focus on reducing costs and improving capital efficiency without being forced sellers allows UBS to create shareholder value and strengthen its capital position. ,
- UBS's Wealth Management net new loans continue to decline due to client deleveraging, with little expectation of re-leveraging in the near term given the current interest rate environment, which may impact future revenue growth in this key division.
- The strong gains reported in the Non-core and Legacy (NCL) unit in Q1 are not expected to repeat, as management indicates that future gains from unwinding complex positions may be limited, potentially leading to lower profits in upcoming quarters.
- UBS faces uncertainties regarding future capital requirements due to regulatory changes, including the need to hold almost $20 billion in additional capital from the Credit Suisse acquisition. Management has not been consulted on potential new regulations and is unable to provide clarity, which could impact UBS's capital returns and growth plans.
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Capital Requirements
Q: Are you changing strategy due to regulatory capital uncertainty?
A: Sergio Ermotti stated that despite regulatory capital uncertainty, UBS is sticking to its strategy and cannot afford to be distracted from executing the complex integration of Credit Suisse. They will address any regulatory changes once they have full clarity. UBS is absorbing $9 billion in capital concessions granted to Credit Suisse as part of the acquisition, already embedded in their plan. -
Cost Savings Progress
Q: How is the cost-saving program progressing towards the $13 billion target?
A: Todd Tuckner reported that UBS expects gross savings to be halfway to their $13 billion ambition by the end of the year, better than previously highlighted. Their goal remains a cost-to-income ratio of less than 70% by the end of 2026. The strong first-quarter operating expense performance contributes positively, but they are not changing their overall targets yet. -
Non-Core Legacy Gains
Q: Can you explain the strong gains in the Non-Core Legacy unit in Q1?
A: Gains came from unwinding complex, longer-dated transactions across sectors like conduit and corporate loans, longevity, and securitized products. The team has done a great job exiting positions at or above book value, but such gains are not expected to repeat, as future disposals may not yield similar results. -
Capital Distribution Plans
Q: Will you continue with the planned $1 billion share buyback despite new capital proposals?
A: Sergio Ermotti confirmed that UBS intends to restart the share buyback program with up to $1 billion for 2024, pending the completion of the parent bank merger expected at the end of May. They believe this amount is feasible regardless of potential regulatory changes. -
Wealth Management Net New Assets
Q: Is net new asset growth in Wealth Management on track to meet targets?
A: UBS reported $27 billion in net new assets for the quarter, which is strong and on track to deliver their ambition of $200 billion over two years. The trajectory accounts for financial resource optimization and balance sheet initiatives. The decline in relationship managers has had minimal impact, as they've retained the lion's share of assets. -
Transaction Fee Strength in Wealth
Q: Is the strong Q1 transaction fee performance in Wealth sustainable?
A: Todd Tuckner explained that the strong performance was due to an environment conducive to transactional flows, with clients engaging in more complex structured products. Structural factors like the aligned product offerings from the integration of Credit Suisse and UBS, and joint client approaches with the investment bank, bode well for continued strength. -
Investment Bank Integration Productivity
Q: Are the acquired Credit Suisse investment bankers fully productive now?
A: Sergio Ermotti stated that all team members are now up and running, actively pitching and winning mandates. While execution takes time, the momentum in securing new business is strong, and they are comfortable with the growth trajectory if market conditions remain favorable. -
Wealth Management Net Interest Income Outlook
Q: How would unchanged U.S. rates affect Wealth NII guidance?
A: Todd Tuckner noted that if there were no U.S. rate cuts, there would likely be some upside to net interest income. They had modeled in three U.S. dollar rate cuts; the absence of cuts could improve NII by a point or two, though client behavior and balance sheet dynamics also play a role. -
Wealth Management Deleveraging
Q: What's causing the decline in net new loans in Wealth Management?
A: UBS is seeing continued deleveraging due to market conditions and resource optimization efforts. In the current rate environment, clients are hesitant to re-leverage, and they expect limited momentum until rates potentially come down over the next 12 to 18 months. -
Competition Concerns in Switzerland
Q: Are there competition issues due to increased market share in Switzerland?
A: Sergio Ermotti is confident there are no dominant position concerns in Switzerland. UBS has clear agreements on antitrust matters, and facts show that UBS does not hold a dominant market share in areas like deposits, loans, mortgages, or branch numbers.