Q4 2024 Earnings Summary
- UBS has successfully mitigated the impact of Basel III capital requirements, reducing the CET1 impact to much lower than previously guided, due to infrastructure improvements, model alignments, and risk reductions. This strengthens their capital position and reduces regulatory uncertainty. [14]
- UBS is targeting a lower CET1 capital ratio in its UBS Americas subsidiary, bringing it down from previous levels to the upper teens, aligning with the group's overall capital ratios and Swiss standards of 13% to 15%. This could free up capital and improve returns. [15]
- UBS's Investment Bank is building its pipeline in Equity Capital Markets (ECM), which is expected to yield more payback later in 2025 into 2026. This indicates potential future revenue growth in their Investment Banking division. [15]
- UBS faces significant headwinds in its Personal and Corporate Banking (P&C) division due to near-zero interest rates in Switzerland, with limited ability to mitigate the negative impact on net interest income (NII). Management stated they have "very limited room for maneuverability" when rates are near zero and have to "wait until we see some daylight in terms of changes in that yield curve."
- The Investment Bank may be underperforming peers in capital markets growth, particularly in Debt Capital Markets (DCM), where they are "underweight versus peers." Delays in revenue growth from the integration of Credit Suisse's teams may push payback from pipeline build to late 2025 into 2026.
- Subdued client risk appetite is impacting Global Wealth Management, with lower-than-expected transaction revenues and declining loan balances. Management noted that the "extent of releveraging that we're pricing into the outlook, we may see that come in less aggressively." Additionally, the industry fee pool is down "around 20%, 21% for January," which could affect UBS's revenues.
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Credit Suisse Integration: Synergy Realization | Q1: $5B realized (40% of $13B target by 2026). Q2: $6B realized (45% of target). | Nearly 60% of $13B target captured by end of 2024. | Accelerated synergy capture |
Credit Suisse Integration: Pipeline Momentum | Q1: Strong GWM push ($27B net new) and IB pipeline building. Q2: Retained 80% of CS assets. | IB market share gains; benefits expected in 2025. | Momentum continues |
Credit Suisse Integration: Potential Delays | Q1: No major delays indicated. Q2: Acknowledged complexity, not linear. | 2025 performance impacted by data migration & operational risks. | Cautious on integration timeline |
Mitigation of Basel III Capital Requirements | Q1: Extra $9B + $10B add-ons for CS holdings. Q2: Early FRTB adoption, deemed manageable. | Revised 30 bps guidance now lower, continuing capital-light IB approach. | Still a watch point, partially mitigated |
Swiss Regulatory Environment | Q1: Proposed TBTF changes, stressed sustainable model & capital position. Q2: Could face short-term disadvantage if no global alignment. | Concern about disproportionate capital hikes; calls for cost-benefit analysis. | Increasing caution over regulatory burden |
Targeted Capital Ratio Adjustments in UBS Americas | Q1: No mention [N/A]. Q2: No specific ratio detail, but simplification efforts. | CET1 ratio reduced from 27% to 20% to free up capital. | New focus on capital redeployment |
Challenges in P&C from Near-Zero Swiss Rates | Q1: NII decline, deposit mix shift, $50M headwind. Q2: Further NII drop amid SNB cuts & loan repricing challenges. | Additional 10% NII decline sequentially, limited hedging options. | Deeper margin pressure |
Investment Banking Pipeline (ECM & DCM) | Q1: Capital markets +85% YoY; strong 2H pipeline. Q2: +82% cap markets YoY, no detailed ECM/DCM breakdown. | Expect meaningful ECM/DCM revenue growth in 2025/2026. | Pipeline building, payback delayed |
Shifts in WM Net New Loans & Risk Appetite | Q1: Continued deleveraging, subdued re-lever. Q2: NII down, APAC caution. | Decline in loan volumes amid rising rates; clients remain cautious. | Cautious stance persists |
Cost Savings Progress & NCL Unwinding | Q1: $5B saved (40% of target), NCL RWA –$16B. Q2: $6B (45%), deeper NCL cost cut. | $7.5B (58%) achieved; still targeting $13B by 2026; further NCL reductions. | Consistent progress, on track |
High Cost/Income Ratio in Americas WM | Q1: Not discussed [N/A]. Q2: Ratio at 90%, aiming for mid-teens margin. | Margin remains 10%, targeting improvement toward mid-teens by 2027. | Recognized issue, gradual improvements |
Potential Future Capital from Early FRTB | Q1: No mention [N/A]. Q2: Early Swiss FRTB in 2025, manageable but could be a disadvantage. | Focus on capital-light IB (≤25% RWA), aiming 15% ROE. | Remains a watch area for competitiveness |
Structural Transaction Fee Growth in GWM | Q1: Driven by structured products & integrated coverage. Q2: +14% YoY, strong in APAC & Americas. | +12% YoY, supported by structured products/equities. | Consistent fee growth across regions |
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Capital Requirements and ROE Dilution
Q: Can UBS offset ROE dilution from potential higher capital requirements?
A: Management stated there are no easy fixes or offsets beyond current plans; any additional capital requirements would be dilutive to ROE. -
Integration Costs and Complexity
Q: Is integration getting harder after front-loading easy tasks?
A: The increase in integration costs to $14 billion is not due to increased complexity; initial estimates were low, and new opportunities for shareholder value have been identified, requiring extra costs. -
U.S. Wealth Management Improvements
Q: What's different in improving U.S. wealth management this time?
A: UBS is executing comprehensive initiatives with realistic margin expectations, focusing on multiple levers to enhance efficiency and improve pretax margins over the midterm. -
Capital Repatriation and Double Leverage
Q: How does capital repatriation affect double leverage and capital allocation?
A: A significant portion of the $13 billion repatriated is used to normalize equity double leverage inherited from Credit Suisse; future capital needs will be funded from retained earnings. , -
Adjusted FA Compensation in the U.S.
Q: How are FA incentives changing in U.S. wealth management?
A: UBS is realigning FA compensation to better match strategic goals and market practices; FAs aligned with UBS's strategy will benefit, though some attrition is possible. -
P&C Net Interest Income Decline
Q: How will declining rates impact P&C net interest income?
A: NII is expected to decrease more significantly in 2025 due to rates approaching zero; after Q2, NII should plateau, but there's limited margin improvement unless rates change. , -
Noncore Deleveraging Pace
Q: Why is noncore deleveraging slowing despite supportive markets?
A: Remaining positions are smaller, hedged, and often illiquid; accelerating rundown would incur costs exceeding expected returns, so UBS prioritizes shareholder value over speed. -
Rebalancing Wealth Segments in the U.S.
Q: Is UBS shifting focus from ultra-high-net-worth to affluent clients?
A: UBS is rebalancing to increase penetration in high-net-worth and affluent segments where profitability is higher, while maintaining strength in ultra-high-net-worth; it's not a strategy shift. -
Basel III Impact on CET1 Ratio
Q: Why is Basel III having minimal impact on the CET1 ratio?
A: UBS mitigated the impact through infrastructure improvements, model alignments, and risk reductions, resulting in a day-one effect much lower than previously guided. -
Capital Markets Revenue Underperformance
Q: Why did capital markets revenue growth lag peers?
A: UBS is underweight in DCM, affecting performance; in ECM, the pipeline is building, with expected payback in 2025–2026 as teams become fully productive. -
Investment in U.S. Wealth Management
Q: How will investments impact U.S. wealth management margins?
A: Investments in technology and capabilities are factored into pretax margin expectations; UBS aims for mid-teens PBT margin by 2027, narrowing the gap to peers. , -
Capital Ratio Changes at UBS AG Level
Q: Despite repatriating $13 billion, why did the CET1 ratio only rise slightly?
A: The CET1 ratio increase was offset by a dividend accrual to the group, balancing the capital received and addressing equity double leverage concerns. -
Client Risk Appetite and Activity
Q: What's the outlook for client activity and releveraging?
A: Higher rates may support deposit margins but could chill releveraging; UBS anticipates less aggressive growth in client activity due to the rate environment. -
National Charter for U.S. Banking
Q: How soon will UBS obtain a national banking charter in the U.S.?
A: UBS is actively working on the application but cannot predict the timeline; obtaining the license will unlock new product capabilities. -
Fee Pool Decline in Global Banking
Q: How is the fee pool affecting UBS's Global Banking pipeline?
A: The industry fee pool is down around 20% year-on-year in January; despite this, UBS's pipeline is building, and they're confident in generating new business.
Research analysts covering UBS Group.