UBS Group AG Q4 FY2023 earnings call

Management Statement and Operational Highlights

• 2023 was a defining year with acquisition of Credit Suisse, accelerating strategic priorities. Stabilized Credit Suisse's client franchises, achieved underlying profitability, reduced funding costs, and run down non-core books.
• In Q4, $22 billion in net new assets in GWM, cut $1 billion in exit rate gross costs, reduced RWA by $6 billion. CET1 capital ratio at 14.5%, total loss-absorbing capacity $200 billion.
• Integration plans: completing parent bank mergers by H1 2024, Swiss entity merger by end of 2024 Q3, aiming for $13 billion in gross cost reductions by 2026, focusing on improving client experience and technology proficiencies.

Segment Performance

• Global Wealth Management: Saw continued momentum with $22 billion in net new assets in Q4, $5.4 billion in revenues, profit before tax $778 million (down 31% sequentially). Net interest income down 2%, recurring fees down 2%, operating expenses up 5% to $4.6 billion.
• Personal and Corporate Banking: Generated pre-tax profit of CHF794 million in Q4 (up 3%), net interest income down 1%, non-NII revenues down 11%, credit loss expenses CHF72 million.
• Asset Management: Underlying PBT increased 16% to $180 million, net new money negative $12 billion, OpEx up 4% to $625 million.
• Investment Bank: Operating loss $280 million, underlying revenues up 11% year-over-year, expect return to profitability in Q1 2024.
• Non-core and Legacy: Underlying PBT negative $977 million, reduced RWA by $6 billion, LRD dropped by $19 billion, underlying OpEx down 9%.

Guidance

• Aim for underlying return on CET1 capital of around 15% and cost income ratio less than 70% by 2026.
• Expect net new assets of $100 billion in 2024-2025, rising to $200 billion by 2028.
• Plan to propose an ordinary dividend of $0.70 for 2023 (27% increase y-o-y), mid-teen percentage increase in 2024 dividend, target up to $1 billion in share buybacks in 2024.

Risks

• Integration challenges related to combining two GSIBs, including structural issues at Credit Suisse.
• Market volatility and regulatory changes impacting financial performance.
• Risk of disruption during client migrations and legal entity mergers, potential for ongoing cost and capital inefficiencies.

Question and Answer

Q: On revenue assumptions and cost flexibility, how to think about it?

A: Revenue picture is based on reasonable scenarios, not toppy, with flexibility in pacing reinvestments of cost saves. For IB, onboarded resources are ramping up with good mandate wins, focusing on market share and client value creation.

Q: On 2026 profitability jump and distribution, how?

A: 2026 benefits from full harvesting of cost saves, with progressive dividend policy and mix of cash dividends and buybacks, balancing based on stock trading and capital management.

Q: On RWA reductions and capital return constraints, any examples and constraints?

A: Examples include holistic client coverage and pricing optimization. Share buyback plans for 2025 depend on integration progress, with 14% CET1 as a key assumption, and focus on legal entity mergers and tax rate normalization.

Q: On revenue decision-making and product areas, where cost opportunities?

A: Additional cost opportunities validated, focusing on cost and resource optimization, with no immediate product exits but repricing existing core relationships. RWA return on capital depends on balance sheet optimization and risk-weighted asset management.

Q: On net new assets and liquidity, underlying outflows and liquidity coverage?

A: Net new assets guide reflects growth with balance sheet hygiene, expecting $100 billion in 2024-2025, rising to $200 billion by 2028. High liquidity coverage is due to Swiss liquidity requirements, with focus on diversifying funding sources.

Q: On GWM Americas profitability and APAC transaction margins, strategic actions and evidence?

A: GWM Americas focuses on core banking infrastructure, product and capability investments. APAC saw good TRX performance in Q4, with diversified approach to compensate for regional underperformance.

Q: On share buyback restart and capital requirements confidence, link and rating?

A: Share buyback restart linked to parent bank merger progress for capital buffer, with confidence in current regulation but recognizing need for self-critical review of Credit Suisse's failure.

Q: On RWA optimization and redeployment, moving parts and timeline?

A: RWA optimization includes balance sheet growth trade-offs, with focus on higher return on risk-weighted assets. Timeline for RWA reduction and capital return depends on integration milestones and regulatory compliance.

Q: On NII guidance and deposit mix, drivers and impact?

A: NII recovery expected in mid-2025, with deposit mix effects tapering, including U.S. stability, APAC inflows, and Switzerland slight outflow. No major impact from Lombard deleveraging in guidance.

Q: On capital and NII, buyback potential and Lombard impact?

A: CET1 capital buffer provides buyback potential, with no significant Lombard deleveraging impact on NII guidance. Focus on resource optimization and funding efficiencies.

Q: On GWM U.S. profitability convergence and net inflow geographies, levers and excitement?

A: GWM U.S. profitability convergence through core banking infrastructure and product investments. Excitement in geographies like Brazil and Australia, leveraging CS integration for client segment and business growth.