UBS Group AG Q3 FY2024 earnings call

• Strong financial performance with net profit of 1.4 billion and underlying PBT of 2.4 billion. Invested assets across the group increased by 15% year-on-year to 6.2 trillion.
• Completed client account and data migrations in Luxembourg and Hong Kong in October. Next milestones include client account migrations in Singapore and Japan by year-end, with Swiss migrations starting in Q2 2025.
• Voluntarily accelerated the phase-out of remaining transitional capital adjustments, bringing CET1 capital ratio to 14.3%. Actively investing in AI, such as deploying 50,000 Microsoft Copilot licenses and introducing internal AI assistant Red.
• Employee survey showed 84% proud to work for UBS and 83% would recommend UBS as an employer, well above industry benchmarks.

Global Wealth Management (GWM)

• Pretax profit was 1.3 billion, an increase of 30%, with revenue growth outpacing expenses by 4 percentage points. Total revenues increased by 7%. Recurring net fee income grew 9% to 3.2 billion, with invested assets reaching 4.3 trillion, up 16% year-on-year. Transaction-based revenues were 1.1 billion, up 19%.

Personal & Corporate Banking (P&C)

• Third quarter pretax profit was CHF 659 million, down 7%. Revenues decreased by a similar level, with net interest income (NII) dropping 11% due to lower Swiss franc interest rates.

Asset Management

• Pretax profit increased by 46% to 237 million, with revenues up 13%. Net management fees were broadly flat, while performance fees were 46 million. Net new money in the quarter was positive 2 billion.

Investment Bank (IB)

• Pretax profit was 377 million, with revenues up 29% to 2.5 billion. Global markets had its best third quarter on record, and banking revenues increased 21% to 555 million.

Noncore and legacy

• Pretax loss in the quarter was 333 million, with revenues of 262 million, primarily from exit gains and securitized products.

• Will provide more details on 2025 capital return plans, including continued share buybacks, with fourth quarter results. Ambition for 2026 capital returns to exceed preacquisition level, subject to Switzerland's capital regime review.
• Fourth quarter expected to have underlying pretax profit of 2.4 billion, including 0.5 billion from purchase price allocation adjustments and 1.2 billion in integration-related expenses, with an effective tax rate of around 35%.
• Aim to reach a cost-to-income ratio below 70% by the end of 2026, with around 7.5 billion in annualized gross cost saves delivered by the end of 2024 versus the 2022 baseline.

• Short-term uncertainties from seasonality, global macroeconomic developments, geopolitical conflicts, and the upcoming U.S. elections affecting investor behavior.
• Execution risks associated with the Credit Suisse acquisition, such as potential client disruption during account and platform migrations.

Q: The first question is on buyback in 2025. The second quarter stage, you were not commenting yet on buyback. Clearly, that changed at a recent conference and you're reconfirming this Sergio today as well. I just wanted to understand what the thinking is in terms of changing the buyback view in 2025? And how that fits into the regulatory regime changes that might come in the future. And in that context, if you could just also indicate if you will make any comments with the full year results as you will give us a buyback for 2025, how that fits this regulatory changes especially referring to the parent bank capital issue? And then the second question is on U.S. Wealth Management. Are you seeing a peak in yield seeking from depositors at this point and the hearing from U.S. peers that there is some stabilization sweep accounts. So I'm just trying to understand how lower rates will impact sweep, but also potentially impact loan growth as I can see, it's flattish in the quarter.

A: Okay. Thanks, Kian. Well, look, if you go back into our remarks, my remarks in the past, I always clearly stated that starting a buyback program in 2024 would be at the start of a journey that would not be a stop and go kind of strategy. So I always -- and we always flag the fact that in 2025, we will have a share buyback. Now we are reiterating that guidance by saying that we do expect in the early part of 2025 as we present Q4 results to tell like we did this year, the amount of ambitions or the size of the ambitions we have for 2025. So in that sense, I think that -- I just -- we are just reiterating our commitments, also in respect of our ambitions for 2026 is that, of course, they are subject to requirements -- potential new requirements in Switzerland, and then we will assess. But our ambition is to have similar returns we had before the acquisitions by 2026. Now for 2025, early 2025, your question, are we going to have more clarity? I don’t know. We are not really in control of the timing. I think I suspect that we won’t be able to give a lot of guidance on that – in that sense because we are still going through technical discussions. The consultation process probably is going to start late this year or even in the early part of next year, and it’s going to take a few months. So it’s very unlikely that in February, we will be able to give much more clarity on this topic. And so this is very unlikely then to affect 2025 capital returns ambitions. And that also implies that there is no change in terms of the parent bank, as you saw our parent bank – our overall capital position, it’s very strong. And also when you look at our parent bank capital at 13.3% is very solid, is already on a fully applied basis, and with a methodology on how we look at valuation of assets and subsidiaries that is quite conservative, definitely compared to what we saw in the past. Kian, regarding your second question, in terms of lower rates and impact on our U.S. wealth business. So first on the loan side, absolutely, I would expect across the division that lower rates will, I made this comment earlier in my remarks, should spur additional lending opportunities across the division, including in the U.S. On the deposit side, in particular, on sweeps. So first, I’d say a couple of things that we are seeing sweep deposits continue to taper. But in the quarter, we did have smaller outflows, so still about 1 billion of outflows. I’d say that some of the market dynamics that I see in this regard. One is that we’re not yet pricing sweeps higher versus maybe some of the peer set doing. Secondly, we have a higher percentage of assets with ultra-high net worth. And for sure, that asset band tends to have a much lower percentage of AUM in sweeps. So that’s going to be a market dynamic for us that we’ll always weigh on that sensitivity just given that with a more high net worth client base where there’s more sensitivity in terms of deposit pricing, naturally, then there’ll be lower balances and sweeps. That said, I expect as rates come down, that we will continue to see sweeps balance taper, if not starting to grow.

Q: Just two questions from me. So 2025 profitability. You've guided for high single-digit return on core Tier 1, consensus is at 9. You're already at 9.2 in the 9-month stage this year. So how should we be thinking about the outlook for returns and earnings growth in '25 versus '24? And also any specific items to be aware of in the fourth quarter that could bring the '24 return on quarter 1 down meaningfully from what we've seen so far this year? And then second, and again, it's a bit of a follow-up on U.S. wealth. So 12% pretax margin in the quarter. Are there any one-offs in that number? And you've highlighted before you desire to bring a broader suite of products and capabilities to clients to drive that margin up towards the mid-teens target. What are the key signposts we should look out for, for you to sort of be delivering on that strategy? And given the comments yesterday from column on M&A, how does M&A fit into that strategy as well?

A: Chris, so maybe just address your second question initially. Just in terms of the pretax profit in the Americas region. No, no one-offs. Just I would comment that, first of all, strongest revenue quarter ever. So they're certainly seeing that as a strength. We continue to see revenues growing nicely, up 3% sequentially in the region and 9% year-on-year. And so no one-offs. You see as well, I highlighted in my comments, the transaction revenues continue to be a real plus for us as we borrow the page from our strategy outside the U.S. in terms of working hand-in-hand with the IB in working with clients and bringing them our product shelf in transactions. So really generating good transactional growth in that respect. Look, we're going to -- we know what we need to do, and we're going to stay focused on continuing to chip away at our goals. It's not going to happen overnight, and we'll continue to come back and talk about, in fact, in the fourth quarter, will give more of a perspective on how we see things and the signposts you can look to. In terms of 2025 and -- I'd say, first off, if we look out into 4Q, you asked, I mean other than the seasonality that we highlighted in the fourth quarter a bit on the top line that you would normally see despite the momentum we saw coming into 4Q, also a little bit on the expense side, as I highlighted in my comments a bit of the somewhat seasonal uptick and some one-offs like the U.K. bank levy. But away from that, no, I mean, nothing that we're seeing and nothing on the CET1 capital ratio that I would highlight. As we look out, I don't think we want -- we don't think it's appropriate to draw a straight line or extrapolate from the strong return on CET1 we generated this year. I think we just have to keep doing the things that we said we're going to do. We know we have costs that have to continue to come out. At this point, that’s going to be the biggest driver of getting us to a cost-to-income ratio below 70% and returns to around 15% by the end of 2026. We know that’s the ambition for us, and we’re going to work over the next 2 years to get there. But at this point, I wouldn’t extrapolate necessarily from our ‘24 performance to draw a line into ‘25.