Release Date: October 30, 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 financial performance with a net profit of $1.4 billion and an underlying PBT of $2.4 billion for the third quarter.
- The company achieved a 9% year-on-year increase in underlying revenues, with significant growth in the Americas and APAC regions.
- Invested assets across the group increased by 15% year on year to $6.2 trillion, indicating strong client trust and engagement.
- UBS successfully integrated client accounts and data in Luxembourg and Hong Kong onto its platforms, marking a significant milestone in its integration process.
- The Investment Bank division showed robust performance, particularly in equities, and maintained momentum in advisory, outperforming global M&A fee pools for the third consecutive quarter.
Negative Points
- UBS faced expected headwinds on net interest income in Switzerland, impacting overall revenue growth.
- Operating expenses increased by 2% quarter-on-quarter, partly due to currency effects and higher variable compensation linked to revenues.
- The company anticipates a sequential mid-single-digit percentage drop in net interest income in the fourth quarter due to expected rate cuts.
- UBS's noncore and legacy division reported a pretax loss of $333 million, highlighting ongoing challenges in winding down legacy positions.
- The company is navigating uncertainties related to global macroeconomic developments, geopolitical conflicts, and upcoming US elections, which could affect investor behavior.
Q & A Highlights
Q: Can you explain the change in UBS's stance on share buybacks for 2025 and how it relates to potential regulatory changes?
A: Sergio Ermotti, Group CEO, stated that UBS has always intended to continue its share buyback program into 2025, reiterating their commitment to capital returns. The company plans to announce the size of the buyback with the Q4 results. Regulatory changes in Switzerland could impact future plans, but UBS's current capital position is strong, and they do not expect immediate changes to their 2025 capital return ambitions.
Q: How are lower interest rates affecting UBS's US wealth management business, particularly regarding sweep deposits and loan growth?
A: Todd Tuckner, Group CFO, noted that lower rates are expected to spur lending opportunities, including in the US. Sweep deposits are tapering, with smaller outflows observed. UBS has not increased sweep pricing compared to peers and has a higher percentage of assets with ultra-high net worth clients, which affects sweep balances. As rates decrease, sweep balances may stabilize or grow.
Q: What is the outlook for UBS's profitability and returns in 2025 compared to 2024?
A: Todd Tuckner highlighted that while UBS has achieved a 9.2% return on CET1 capital year-to-date, they do not expect a straight-line extrapolation into 2025. The focus remains on cost reductions to achieve a cost-to-income ratio below 70% and a return on CET1 capital of around 15% by the end of 2026. Seasonal factors and specific expenses may affect Q4 2024 results.
Q: Can you provide more details on UBS's balance sheet optimization efforts and their impact on revenues?
A: Todd Tuckner explained that UBS is optimizing capital deployed in lending relationships, particularly those inherited from Credit Suisse, by repricing and expanding product offerings. This has improved revenue over RWA margins. The optimization efforts have also impacted net new assets, as some clients leave the platform during repricing.
Q: How is UBS's wealth management business performing in Asia, and what is the outlook for the region?
A: Todd Tuckner expressed optimism about UBS's wealth management performance in Asia, noting strong transaction-based income growth. The integration of UBS and Credit Suisse platforms in Hong Kong and upcoming migrations in Singapore and Japan are expected to enhance business operations. The region is well-positioned for future growth, with potential opportunities from lower interest rates and releveraging.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
