6-K 1 investorpreso20240815.htm investorpreso20240815
 
 
 
 
 
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 6-K
REPORT OF FOREIGN PRIVATE
 
ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
Date: August 15, 2024
UBS Group AG
(Registrant's Name)
Bahnhofstrasse 45, 8001 Zurich, Switzerland
(Address of principal executive office)
Commission File Number: 1-36764
UBS AG
(Registrant's Name)
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Aeschenvorstadt 1, 4051 Basel, Switzerland
 
(Address of principal executive offices)
Commission File Number: 1-15060
 
Indicate by check mark whether the registrants file or will file annual
 
reports under cover of Form
20-F or Form 40-
F.
Form 20-F
 
☒
 
Form 40-F
 
☐
This Form 6-K consists of the transcript of the UBS Group AG 2Q24 Earnings
 
call remarks and
Analyst Q&A, which appears immediately following this page.
 
 
1
Second quarter 2024 results
 
14 August 2024
Speeches by
Sergio P.
 
Ermotti
, Group Chief Executive Officer,
 
and
Todd
 
Tuckner
,
Group Chief Financial
 
Officer
Including analyst
 
Q&A session
Transcript.
Numbers
 
for slides
 
refer to
 
the second
 
quarter
 
2024 results
 
presentation.
 
Materials
 
and a
 
webcast
replay are available at
www.ubs.com/investors
 
Sergio P.
 
Ermotti
Slide 3 – Key messages
 
Thank you, Sarah and good morning,
 
everyone.
 
It
 
has
 
been
 
a
 
little over
 
a
 
year
 
since
 
the closing
 
of
 
the acquisition.
 
We
 
made significant
 
progress
 
and UBS
continues to deliver on all of its commitments
 
to stakeholders.
 
Putting the
 
needs of
 
clients first
 
during a
 
challenging market
 
environment has
 
allowed us
 
to maintain
 
solid
momentum while we
 
fulfill our objective
 
of completing the
 
integration by the
 
end of 2026.
 
As a consequence,
not only
 
we have
 
dramatically reduced
 
the execution
 
risk of
 
the integration,
 
we are also
 
well positioned
 
to meet
all of our financial targets
 
- and return to the level
 
of profitability UBS delivered before
 
being asked to step in
and stabilize Credit Suisse.
 
I am
 
particularly proud
 
to note
 
that across
 
the combined
 
organization our
 
people are
 
embracing the
 
pillars,
principles and behaviors that drive
 
UBS’s culture.
 
These include client centricity and collaboration
 
and enable
us to successfully manage risk and act with
 
accountability and integrity.
 
I’d like to thank all my colleagues around the world
 
for their dedication and hard work.
Our second-quarter results contributed to a
 
strong first-half performance, reflecting the strength
 
of our client
franchises and
 
disciplined implementation of
 
our strategy
 
and integration
 
plans.
 
Reported net
 
profit for
 
the
first half was 2.9 billion, with underlying PBT of 4.7
 
billion and an underlying return on
 
CET1 capital of 9.2%.
 
We strengthened our capital position and maintained a balance
 
sheet for all seasons, with a CET1 capital ratio
of 14.9%
 
and total
 
loss-absorbing capacity of
 
around 200
 
billion.
 
Our parent
 
bank is
 
well capitalized,
 
even
after withstanding the removal of
 
significant regulatory concessions previously granted to Credit
 
Suisse.
 
As a
result, we are
 
executing on our 2024 capital return
 
plans and, as I mentioned last
 
quarter,
 
we are committed
to delivering on our mid-to-long term ambitions
 
for dividends and buybacks.
2
Turning
 
to the integration, we
 
have captured nearly
 
half of our
 
targeted gross cost
 
savings as we
 
restructure
our core
 
businesses and
 
wind down
 
Non-core and
 
Legacy,
 
where we
 
have materially
 
reduced risk-weighted
assets over the last twelve months.
As
 
part
 
of
 
our
 
de-risking efforts,
 
we
 
have
 
also
 
made
 
good
 
progress
 
addressing
 
Credit
 
Suisse’s
 
legacy
 
legal
issues, including the Supply Chain Finance
 
Funds and Mozambique matters.
 
Following these
 
intense months
 
of execution,
 
during which
 
we obtained
 
more than
 
180 approvals
 
from roughly
80 regulators
 
in more
 
than 40
 
jurisdictions, we
 
completed the
 
mergers of
 
our parent
 
and Swiss
 
banks, and
transitioned to a single U.S. intermediate holding
 
company.
This clears the way for the next set of critical milestones that will support the realization of further integration
synergies.
But let me reiterate something you’ve heard me say before: We still have a lot of work ahead of us to address
Credit Suisse’s structural lack of sustainable profitability.
 
While we
 
are encouraged by
 
the significant
 
progress we
 
have made
 
across the
 
Group, the
 
path to
 
restoring
profitability to the pre-acquisition levels won’t be linear.
 
We are
 
now entering
 
the next
 
phase of
 
our integration which
 
will be
 
key to
 
realizing the
 
further substantial
cost, capital, funding and tax benefits necessary
 
to deliver on our 2026 financial targets.
 
We are following through on our plans amid heightened uncertainties in the markets. These are the moments
in which UBS proves its strength, resilience and superior ability to
 
serve and advise clients.
 
This is reflected in the trust that our clients have placed in us every quarter since the close, with a total of 127
billion in net new assets.
 
We’ve
 
also
 
remained
 
focused
 
on
 
our
 
strategic
 
objectives
 
to
 
enhance
 
our
 
client
 
offering
 
and
 
leverage
 
the
breadth, scale and synergies of our combined franchises.
 
In the
 
Investment Bank,
 
I am
 
pleased by
 
the client
 
response to
 
the strategic
 
additions we
 
have made
 
to reinforce
our capabilities and competitive position.
 
The first-half performance is
 
a positive signal
 
that the investments are
 
paying off.
 
In Global Markets
 
we saw
the highest second
 
quarter on record.
 
And in Global
 
Banking we have
 
captured sizeable market
 
share gains.
Importantly, we achieved these results without compromising on our risk and capital discipline.
We are also
 
increasing collaboration across the firm
 
as GWM clients continue to benefit
 
from our IB products
and
 
capabilities.
 
This
 
drove
 
the
 
majority
 
of
 
wealth
 
management’s
 
expansion
 
of
 
client
 
activity
 
this
 
year,
particularly in the Americas and APAC.
 
Another
 
example
 
is
 
our
 
newly
 
created
 
Unified
 
Global
 
Alternatives
 
unit
 
which
 
combines
 
our
 
Alternatives
investment capabilities across GWM and Asset Management.
 
In
 
fact,
 
this
 
is
 
not
 
just
 
an
 
internal
 
cooperation.
 
We
 
are
 
reshaping
 
the
 
competitive
 
landscape
 
by
 
effectively
creating a
 
top-5 global
 
player and
 
Limited Partner
 
with 250
 
billion in
 
invested assets
 
across hedge funds,
 
private
equity, private credit, infrastructure and real estate.
 
3
Unified
 
Global
 
Alternatives
 
will
 
offer
 
our
 
institutional,
 
wholesale,
 
wealth
 
management
 
clients
 
a
 
more
comprehensive
 
offering
 
and
 
enhanced
 
access
 
to
 
exclusive
 
co-investment
 
opportunities.
 
It
 
will
 
also
 
provide
General Partners with a single point of access
 
to the full distribution power of our firm.
 
In Asset Management, we
 
are offsetting margin compression by
 
increasing operational efficiency, which is one
of the key focus areas for the business.
 
In Switzerland, we
 
continue to enjoy
 
the trust of
 
our clients, despite
 
a very competitive
 
and, at times,
 
less-than-
constructive environment.
 
With around 30 billion Swiss
 
francs in net new deposits
 
in the last 13 months and approximately
 
350 billion of
loans extended to clients, we continue to maintain
 
our role as an important engine of credit.
 
Since the acquisition we granted or renewed around 85
 
billion Swiss francs of loans.
 
Higher
 
interest
 
rates,
 
the
 
cost
 
of
 
increased
 
regulatory,
 
capital
 
and
 
liquidity
 
requirements,
 
a
 
changing
macroeconomic outlook, and,
 
last but not least,
 
the necessity to reprice
 
some loans granted
 
by Credit Suisse at
unacceptable risk-returns are having an impact on pricing
 
of new credit.
Of course, those are not always easy discussions to have with clients, but we are constructively engaging with
them, and I believe the vast majority understand
 
the rationale.
 
Switzerland is
 
a key
 
pillar of
 
our strategy
 
and we
 
are fully
 
committed to
 
maintaining our
 
leadership. Swiss
 
clients
and
 
the
 
economy
 
benefit
 
from
 
UBS’s
 
unparalleled,
 
competitive
 
global
 
reach
 
and
 
capabilities.
 
In
 
turn,
 
our
Swissness is a unique differentiator when serving clients
 
around the world.
 
As a testament of
 
this symbiosis, we were
 
recognized by Euromoney as Switzerland’s Best
 
Bank for the tenth
time since 2012 and the world’s best bank.
 
As
 
we
 
continue
 
our
 
integration
 
journey
 
in
 
the
 
Swiss
 
business,
 
we
 
believe
 
it
 
will
 
be
 
important
 
to
 
further
communicate with all our
 
stakeholders about our
 
approach and strategy.
 
To
 
that end, in September, our head
of Switzerland, Sabine
 
Keller-Busse, will present
 
at our flagship
 
Best of
 
Switzerland conference, which brings
together investors and corporate clients.
 
Looking ahead and
 
more broadly,
 
ongoing geopolitical tensions
 
and anticipation ahead
 
of U.S. elections
 
will
likely result in heightened market volatility compared
 
to the first half of the year.
 
In this environment we have two key
 
priorities: First, we must continue to help
 
clients manage the challenges
and opportunities that arise.
Second, we
 
must stay
 
focused and
 
not allow
 
short-term market
 
dynamics to
 
distract us
 
from achieving
 
our
ultimate goal,
 
which is
 
to continue
 
to execute
 
on the
 
integration and
 
invest strategically to
 
position UBS
 
for
long-term value creation.
 
The management appointments
 
we announced in
 
the second quarter
 
will enable us
 
to continue to
 
progress on
this journey. At the same time, we can put even more emphasis on our priorities and prospects
 
for sustainable
growth, particularly in the Americas and Asia-Pacific.
 
 
 
4
We are
 
confident this will
 
also help us
 
to deliver better
 
outcomes for our
 
clients and the
 
communities where
we live and work.
 
With that, I hand over to Todd.
Todd
 
Tuckner
Slide 5 – Sustained revenue momentum with steady
 
progress on cost reduction
Thank you Sergio, and good morning
 
everyone.
In the second quarter,
 
we delivered strong underlying profitability,
 
and we made further progress
 
in reducing
costs and optimizing our balance sheet.
Net profit in the quarter was 1.1 billion.
 
Our EPS was 34 cents and our underlying return on CET1 capital
 
was
8.4%.
Throughout my remarks
 
today,
 
I refer to
 
underlying performance in US
 
dollars and make comparisons
 
to our
performance
 
in the
 
first quarter, unless
 
stated otherwise.
 
From the
 
third quarter
 
onwards, we’ll
 
revert to
 
making
year-on-year comparisons as, by
 
then, the prior year period
 
will fully capture combined performance
 
post the
Credit Suisse acquisition.
Slide 6 – 1.1bn net profit with strong underlying profitability
Turning
 
to slide 6.
 
Total
 
revenues for the
 
quarter reached
 
11.1 billion with
 
top-line performance in
 
our core
businesses holding up nicely from a strong first quarter, down 2% sequentially.
Net interest
 
income headwinds
 
were partially
 
offset by
 
higher recurring
 
fee income
 
in our
 
wealth and
 
Swiss
businesses, and by improving activity in IB capital
 
markets.
 
Revenues in our
 
Non-core and Legacy
 
business were positive
 
in the quarter,
 
albeit 0.6 billion
 
lower versus an
exceptional first quarter.
 
On a reported basis, revenues reached 11.9 billion and included 0.8 billion of mainly purchase price allocation
adjustments in our core businesses, with an additional
 
0.6 billion expected in the third quarter.
Underlying operating
 
expenses in
 
the quarter
 
were 9
 
billion, decreasing
 
by 3%.
 
Excluding litigation
 
and variable
and Financial
 
Advisor compensation
 
tied to production,
 
expenses were also
 
down 3% as
 
we further
 
progressed
our cost-cutting and workforce-management initiatives
 
despite the intense integration agenda.
 
At the end of the second quarter,
 
there were about 35 hundred fewer
 
total staff compared to the end
 
of the
first quarter, and 23 thousand, or 15%, fewer since the end of 2022.
Integration-related
 
expenses
 
in
 
the
 
quarter
 
were
 
1.4
 
billion,
 
resulting
 
in
 
reported
 
operating
 
expenses
 
of
10.3 billion.
 
Credit loss expense was 95 million, driven by a small
 
number of positions in our Swiss corporate
 
loan book.
 
 
5
Our
 
tax
 
expense
 
in
 
the
 
quarter
 
was
 
293
 
million,
 
representing
 
an
 
effective
 
rate
 
of
 
20%,
 
helped
 
by
 
NCL’s
performance and the initial positive effects of completed
 
legal entity mergers.
In the second
 
half of 2024,
 
excluding the effects of
 
any DTA
 
re-valuation, we expect the
 
effective tax rate to
be around 35%,
 
mainly as expected pre-tax
 
losses in legacy Credit
 
Suisse entities can’t be
 
fully offset against
profits elsewhere in the Group.
 
The tax rate could benefit if NCL continues to
 
perform better-than-expected.
 
We continue to expect the
 
ongoing optimization of our
 
legal entity structure to gradually
 
support a return to
 
a
normalized tax rate of around 23% by 2026.
Slide 7 – Ongoing progress on gross and net cost saves
Turning to our quarterly cost update on slide 7.
 
Exiting the second quarter, we achieved an additional 900 million in gross cost saves when compared to three
months earlier,
 
bringing the
 
cumulative total since
 
the end
 
of 2022
 
to 6
 
billion, or
 
around 45%
 
of our
 
total
gross cost save ambition.
 
We estimate that around half of this quarter’s
 
saves benefit our underlying
 
opex with the other half reinvested
as planned
 
in our
 
technology estate
 
as well
 
as to
 
offset increases in
 
variable and
 
Financial Advisor
 
compensation
tied to production.
To
 
date we’ve generated around 4 billion of net saves, primarily driven by
 
NCL, which has shed around 3 and
a half billion of its 2022 cost baseline.
Following the legal entity mergers, we
 
now turn our focus to
 
the critical client account and
 
platform migration
work planned for
 
our core businesses.
 
We start in the
 
fourth quarter with
 
GWM’s booking hubs
 
in Hong Kong,
Singapore,
 
and
 
Luxembourg, followed
 
thereafter
 
by
 
client
 
account
 
transitions in
 
our
 
Swiss
 
booking
 
center,
which supports both GWM and P&C.
 
Along with
 
our ongoing
 
cost run-down
 
efforts in
 
Non-core and
 
Legacy,
 
these initiatives
 
represent
 
the most
material drivers
 
of future
 
cost savings
 
as we
 
decommission technology
 
systems, hardware
 
and data
 
centers,
while also unlocking further staff capacity.
 
As I highlighted
 
last quarter, the pace
 
of saves
 
is expected
 
to moderately
 
decelerate from
 
the quarterly
 
run rates
observed over
 
the last
 
several quarters
 
while we
 
prepare for, and initially
 
undertake, these
 
significant integration
activities.
 
We expect to pick-up the pace as
 
we implement these transitions throughout 2025 and into 2026,
particularly benefiting the cost/income ratios
 
of GWM and P&C.
 
The rate at which we are incurring integration-related
 
expenses, which front-run underlying opex saves,
 
is also
indicative
 
of
 
the
 
headway
 
we’re
 
making
 
on
 
costs.
 
In
 
the
 
second
 
half,
 
we
 
expect
 
to
 
book
 
2.3
 
billion
 
of
integration-related expenses, of
 
which 1.1
 
billion in
 
the third
 
quarter.
 
By the
 
end of
 
this year,
 
we expect to
have incurred around 70% of total costs to achieve our
 
2026 exit rate efficiency targets.
Slide 8 – Maintaining a balance sheet for all seasons
 
Moving to our balance
 
sheet.
 
In the second quarter
 
we reduced risk-weighted assets
 
by a further 15 billion,
 
of
which 8 billion from the active run-down of positions in
 
our Non-core and Legacy portfolio, which I will come
back to shortly.
 
 
6
Over 8
 
billion of
 
the decline
 
was seen
 
across
 
the core
 
business divisions,
 
mainly resulting
 
from the
 
financial
resource optimization work in GWM and P&C.
 
As I highlighted earlier in the year, this work is addressing sub-
hurdle returns on capital deployed, including by reducing
 
deposit and loan volumes.
 
The upshot is additional
capacity to absorb headwinds from regulatory
 
and risk methodology changes, model harmonization between
the two banks, and the implementation of
 
Basel 3 Final, now confirmed for January
 
2025.
 
While
 
we
 
continue
 
active
 
dialogue
 
with
 
our
 
supervisor on
 
various
 
aspects
 
of
 
the
 
final
 
rules,
 
at
 
present
 
we
continue to expect the Day 1
 
impact of Basel 3 Final
 
to be around 5%
 
of RWA, driven mainly
 
by FRTB.
 
We’ll
update our estimates by no later than the fourth
 
quarter as requirements firm.
 
Our leverage
 
ratio denominator
 
decreased by
 
35 billion
 
in the
 
quarter.
 
This reduction
 
was driven
 
by several
factors, including
 
full repayment
 
of the
 
central bank
 
ELA facility
 
granted to
 
Credit Suisse,
 
lower lending
 
volumes,
mainly from our financial resource optimization efforts, and the active
 
run-down of our NCL portfolio.
We ended the second quarter with an LCR of 212%,
 
reflecting the ELA repayment, and TLAC of 198 billion.
Slide 9 – Strong capital position at group and parent bank level
Turning to slide 9. Our CET1 capital ratio as of quarter-end was 14.9%.
 
The numerator reflects
 
accruals of this year’s
 
expected dividend and a
 
reserve for 2024
 
share repurchases, of
which we have executed 467 million
 
of the planned 1 billion,
 
as of last Friday.
 
Additionally,
 
our CET1 capital
includes all relevant portions of the purchase price allocation adjustments made to Credit Suisse’s equity as of
the acquisition date last June.
 
With the 12-month measurement period now concluded, total PPA
 
adjustments against the purchased equity
of Credit Suisse amounted to negative 26.5 billion,
 
of which about 70% reduced CET1 capital.
 
Following
 
completion
 
of
 
the
 
parent
 
bank
 
merger
 
earlier
 
in
 
the
 
quarter,
 
next
 
week
 
we’ll
 
report
 
UBS
 
AG’s
consolidated and standalone capital ratios and
 
other information for the first time
 
on a combined basis.
 
UBS AG’s standalone CET1 capital ratio at quarter-end
 
is expected at 13.5% on a fully applied
 
basis.
 
To
 
put this capital ratio in perspective, it’s important to compare
 
the way we manage our parent bank capital
versus Credit Suisse’s pre-acquisition practices.
 
We provide for the complete transition of the risk-weight rule
changes applicable
 
to UBS
 
AG’s subsidiary
 
investments,
 
which overall
 
are valued
 
prudently.
 
Moreover, we don’t
depend on
 
any affiliate
 
valuation concession
 
from the
 
regulator.
 
This was
 
not the
 
case with
 
Credit Suisse
 
before
the take-over,
 
where its approach overstated
 
the parent bank’s resilience,
 
and ultimately limited restructuring
optionality.
In this
 
context, our
 
merged parent
 
bank already
 
provides for
 
around 20
 
billion of
 
additional capital
 
resulting
from the
 
acquisition, including the
 
progressive add-ons
 
from growth
 
in balance sheet
 
and market share
 
that
will be phased-in
 
over five years
 
starting in 2026.
 
The result is a
 
parent bank capital
 
buffer of around 100
 
basis
points above the current fully-applied requirement by 2030.
Slide 10 – Global Wealth Management
Moving to our business divisions, and starting
 
with Global Wealth Management on slide 10.
 
7
GWM’s
 
pre-tax
 
profit
 
was
 
1.2
 
billion
 
on
 
revenues
 
of
 
5.8
 
billion,
 
which
 
were
 
up
 
3%
 
year-over-year
 
on
 
an
estimated, combined basis.
 
Against a complex economic backdrop, clients sought our differentiated
 
advice and solutions as evidenced by
continued strong momentum in net new asset
 
inflows and transactional activity.
Overall,
 
we
 
generated 27
 
billion
 
of net
 
new
 
assets, a
 
growth
 
rate
 
of
 
2.7%,
 
with positive
 
inflows
 
across
 
all
regions.
 
I’m particularly pleased with this result considering the
 
variety of headwinds to net new asset growth
that the
 
business successfully navigated
 
in the
 
quarter,
 
including around
 
6 billion
 
in seasonal
 
tax outflows in
the US. Let me unpack this further.
 
To
 
date, we’ve
 
retained
 
the vast
 
majority of
 
Credit
 
Suisse’s invested
 
assets notwithstanding
 
that more
 
than
40% of Credit Suisse’s wealth advisors have
 
left since October 2022.
 
I would also note that these relationship
managers advised
 
on only
 
20% of
 
assets, meaning
 
that, overall,
 
we’ve retained
 
the more
 
productive Credit
Suisse advisors, a testament to the appeal
 
of our platform.
 
We’ve also kept around 80% of the first large wave of maturing fixed term deposits from last year’s win-back
campaign, with the peak in maturities expected
 
in the third quarter.
 
Furthermore,
 
we
 
made
 
strong
 
progress
 
this
 
quarter
 
in
 
our
 
efforts
 
to
 
increase
 
profitability
 
on
 
sub-hurdle
relationships.
 
Higher returns come from both
 
driving increased platform revenue and
 
proactively exiting sub-
par loans, with these actions in the quarter boosting the revenue over RWA margin by
 
around 30 basis points
sequentially.
 
Lastly, from a macro standpoint, the
 
equity capital markets,
 
and in particular
 
IPO activity, ordinarily a significant
driver of wealth creation and net new asset generation,
 
have only recently started to recover.
These dynamics underscore the
 
basis of our short-term
 
annual guidance of 100
 
billion for 2024 and
 
2025 and,
equally,
 
the
 
resilience
 
of
 
our
 
net
 
new
 
asset
 
achievement
 
in
 
the
 
quarter
 
as
 
well
 
as
 
the
 
high
 
level
 
of
 
client
conviction in our advice and solutions.
 
Now, onto details of GWM’s financial performance.
 
Revenues declined
 
2% sequentially, as lower
 
NII and
 
the expected
 
sequential drop
 
in transactional
 
activity, were
partially offset
 
by growth
 
in recurring
 
net fee
 
income, supported
 
by higher
 
average levels
 
of fee
 
generating
assets.
 
Net
 
interest
 
income
 
decreased
 
by
 
2%
 
sequentially
 
to
 
1.6
 
billion,
 
driven
 
by
 
ongoing
 
deposit
 
mix
 
shifts
 
and
declining loan volumes, partially offset by our
 
repricing actions, which as mentioned support
 
higher returns on
capital and net interest margin.
Looking towards year-end,
 
we maintain our
 
previous guidance that
 
full year 2024
 
NII will be roughly
 
flat versus
4Q23 annualized.
 
This includes
 
a low-to-mid
 
single digit
 
percentage sequential
 
drop in the
 
third quarter, driven
by a decrease in volumes,
 
mix shifts in anticipation
 
of falling rates,
 
and the impact
 
on our replication portfolios.
 
In arriving at
 
this outlook, and
 
in light of
 
recent rates volatility,
 
we’re modeling 100
 
basis points of
 
US dollar
policy rate reductions by the end of 2024.
 
 
8
The
 
outlook for
 
net
 
interest
 
income
 
in
 
our
 
US
 
wealth business
 
is
 
expected to
 
be
 
influenced by
 
competitive
dynamics
 
affecting
 
the
 
pricing of
 
sweep
 
deposits.
 
By
 
the
 
middle of
 
4Q24,
 
we
 
intend
 
to
 
adjust
 
the
 
sweep
deposit rates
 
in our
 
US advisory
 
accounts, which,
 
net of
 
offsetting factors,
 
are expected
 
to reduce
 
pre-tax profits
by around 50 million annually.
Looking across
 
our wealth
 
business beyond
 
year-end, we expect
 
an inflection
 
point in
 
GWM net
 
interest income
around the time implied
 
forwards reach a structural
 
floor and stabilize, and
 
clients begin to re-leverage,
 
driving
loan balances and NII higher.
 
Moreover,
 
it’s essential to consider that GWM’s diversified and
 
CIO-driven fee-generating business model has
proven
 
both
 
its
 
appeal to
 
clients
 
and
 
ability
 
to
 
drive
 
profitable
 
growth,
 
even
 
during
 
past
 
periods
 
of
 
low
 
or
negative interest
 
rates.
 
Consequently,
 
in addition
 
to increased
 
lending, it’s
 
reasonable to
 
expect that
 
lower
interest rates will spur increased
 
transactional activity, mandate sales and investments
 
in alternatives across our
wealth business.
 
Recurring net
 
fee income
 
increased
 
by 3%
 
to 3.1
 
billion from
 
higher client
 
balances.
 
Net
 
sales
 
in our
 
UBS
managed account offerings showed continued momentum,
 
contributing to a sequentially higher recurring net
fee margin in the quarter.
Transaction-based
 
revenues
 
decreased
 
quarter-on-quarter to
 
1.1
 
billion,
 
but
 
notably increased
 
around
 
14%
year-on-year
 
on an
 
estimated, combined basis,
 
with APAC
 
up around
 
30% and
 
the Americas
 
up over
 
20%,
and
 
broadly
 
flat
 
sequentially
 
versus
 
a
 
strong
 
first
 
quarter.
 
Both
 
regions
 
performed
 
exceptionally
 
well
 
in
structured products as clients sought customized investment opportunities in an environment of low volatility,
high interest rates, and continued global tech appeal.
I would also highlight that
 
our investments in combining
 
GWM and IB markets and
 
solutions capabilities in the
Americas are paying off as evidenced by our transactional revenue performance over the first half of
 
the year,
up around 20% versus the same period in 2023.
 
Expenses were
 
roughly flat
 
quarter-on-quarter.
 
Excluding compensation-related effects,
 
underlying operating
expenses
 
dropped
 
2%
 
sequentially.
 
As
 
highlighted
 
earlier,
 
the
 
upcoming
 
client
 
account
 
migration
 
work
 
is
expected to be a significant driver of cost reductions in
 
GWM throughout 2025 and into 2026.
Slide 11 – Personal & Corporate Banking (CHF)
Turning to Personal and Corporate Banking on slide 11.
 
P&C delivered a second quarter pre-tax profit of 645
million Swiss francs.
Revenues were
 
down 4% sequentially,
 
driven by an
 
8% decline in
 
net interest
 
income that was
 
partly offset
with increases in recurring net fees and transaction-based
 
revenues.
 
P&C’s NII
 
in the
 
quarter was primarily
 
affected by
 
higher liquidity
 
costs and
 
the SNB’s
 
25 basis
 
point interest
rate cut from March, as we kept our Swiss clients’ deposit
 
pricing unchanged.
 
In the third quarter, we expect NII to tick
 
down sequentially by a
 
low single digit percentage, mainly
 
due to the
effects of
 
the SNB’s
 
second 25
 
basis-point rate
 
cut from
 
late June.
 
In US
 
dollar terms,
 
we expect
 
NII to
 
be
roughly flat sequentially.
 
9
Despite these effects, as well as higher costs related to the SNB’s move earlier
 
in the quarter to raise minimum
reserve
 
requirements,
 
we
 
nevertheless
 
reaffirm
 
our
 
full-year
 
2024
 
guidance
 
of
 
a
 
mid-to-high
 
single
 
digit
percentage decline versus
 
4Q23 annualized,
 
supported by
 
our balance
 
sheet actions.
 
In arriving at
 
this outlook,
we are currently
 
pricing-in up to two further
 
Swiss franc policy rate
 
reductions of 25 basis
 
points each by the
end of 2024.
Assuming Swiss franc interest
 
rates stabilize next year,
 
as the forward
 
rate curve presently implies,
 
we expect
shortly thereafter to see steadying volumes and an inflection
 
point in P&C’s net interest income.
We also
 
expect by
 
then that
 
our balance
 
sheet optimization work
 
will be
 
largely complete, with
 
loan pricing
reflecting a more
 
appropriate cost of risk
 
across the Swiss
 
credit book.
 
These efforts are
 
necessary to restore
returns on capital deployed and net interest margin
 
in our Swiss business to pre-acquisition levels.
 
In this respect, we saw net new lending outflows of 3.4 billion Swiss francs this quarter,
 
driven by repricing of
sub-hurdle volumes,
 
despite having
 
renewed or
 
granted new
 
loans to
 
our Swiss
 
clients of
 
around 30
 
billion
Swiss francs in 2Q.
Transaction-based revenues
 
were up
 
2% mainly
 
from higher
 
credit card
 
usage.
 
Recurring
 
net fee
 
income gained
3%
 
on
 
higher
 
custody
 
assets.
 
Together,
 
these
 
non-NII
 
revenue
 
lines,
 
up
 
2%,
 
demonstrate
 
the
 
business’s
effectiveness in staying close to clients and minimizing
 
merger dis-synergies.
Credit
 
loss
 
expense
 
was
 
92
 
million,
 
driven
 
by
 
a
 
small
 
number of
 
positions
 
in
 
our
 
corporate
 
loan
 
book, as
 
I
mentioned earlier.
 
Even with the increased focus on
 
risk-based pricing for maturing loan positions, our Swiss
credit portfolio remains of very high quality, with an impaired loan ratio of 1.1%, down sequentially, albeit up
versus pre-Credit Suisse acquisition levels.
For the
 
foreseeable future,
 
we expect
 
CLE to
 
remain
 
at broadly
 
similar levels
 
given increased
 
book-size post
merger, the relative strength of the Swiss franc and
 
some economic softness
 
in the main Swiss export
 
markets.
Operating expenses were flat sequentially.
 
Similar to GWM, future cost
 
reductions in P&C will be
 
closely tied
to the client account and
 
platform migration work for Booking Center Switzerland, planned to
 
commence by
the second quarter of 2025.
Slide 12 – Asset Management
On slide 12, pre-tax profit in Asset Management increased 26%
 
to 228 million.
 
This quarter’s result included a gain of 28 million from the initial portion of the sale of our Brazilian real estate
fund management business.
 
In the
 
third quarter,
 
we expect to
 
record an
 
additional 60 million
 
in underlying
pre-tax profit on gains from disposals, mainly from closing the residual portions
 
of this transaction.
 
Net new
 
money was
 
negative 12
 
billion, with
 
continued client
 
demand for
 
our SMA
 
offering in
 
the US
 
and
positive contribution
 
from our
 
China JVs,
 
only partly
 
compensating outflows across
 
asset classes,
 
particularly
equities.
 
While integration efforts
 
to consolidate platforms may
 
constrain AM’s net
 
new money performance over
 
the
next few quarters, we expect our enhanced global reach and increased scale in alternatives and indexing to at
least partially offset these headwinds.
 
 
10
Net management
 
fees dropped
 
5% as
 
outflows in
 
select active products
 
weighed on
 
margins.
 
Performance
fees were roughly stable in the quarter.
During 2Q, AM made
 
strong progress in improving operational
 
efficiency, a key focus area I highlighted during
the investor
 
update earlier
 
this year.
 
Operating expenses
 
were 9% lower
 
sequentially on
 
reductions across both
non-personnel and
 
personnel costs,
 
partially supported
 
by lower
 
variable compensation.
 
Some of
 
the sequential
decline in variable comp is expected to normalize
 
in the third quarter.
 
Slide 13 – Investment Bank
On to
 
our Investment Bank’s
 
performance on slide
 
13, which, as
 
in prior
 
quarters, I compare
 
on a year-over-
year basis.
 
The IB delivered a strong second quarter result
 
with improving capital markets activity supporting an excellent
Banking quarter.
 
Our Markets businesses
 
performed well in
 
an environment reflecting mixed
 
market trends, in
particular low volatility
 
in equities, rates
 
and FX,
 
as well
 
as lower cash
 
equity volumes in
 
APAC,
 
where we’re
overweight.
Operating profit
 
was 412
 
million, up
 
from an operating
 
loss of
 
14 million
 
a year
 
earlier, and up 2%
 
sequentially,
as the investment banking
 
backdrop continues to improve.
 
Investments to deepen
 
our US presence are having
a positive
 
impact on
 
revenues, as
 
are contributions
 
of Credit
 
Suisse talent
 
across key
 
sectors of
 
Banking and
Markets.
 
Underlying
 
revenues
 
grew
 
by
 
26%
 
to
 
2.5
 
billion
 
with
 
nearly
 
two
 
thirds
 
of
 
the
 
increase
 
coming
 
from
 
the
Americas.
 
I would highlight that our revenue growth was
 
achieved with broadly similar levels of RWA,
 
as the
IB continues to manage within the Group RWA limit of 25%, excluding
 
NCL.
 
Banking revenues
 
were up
 
55% as
 
we outperformed global
 
fee pools,
 
both in
 
capital markets
 
and advisory.
 
Since the
 
end of
 
2023, we
 
have gained
 
over a
 
percentage point
 
in market
 
share in
 
each of
 
our strategic
 
banking
initiatives, including M&A and sponsors in the Americas.
 
Regionally, APAC
 
saw revenues nearly double, while
the US was up 83%.
 
EMEA declined by 3% against a very
 
strong prior period.
 
Capital Markets
 
revenues were
 
up 82%
 
year-over-year
 
with an
 
outstanding LCM
 
performance reflecting
 
an
increase in
 
refinancing activity,
 
mainly in
 
the US.
 
Advisory revenues
 
increased by
 
23% as
 
we leveraged
 
our
strong position in APAC to benefit from increased activity and performed well in the Americas.
The strength
 
of our
 
fully integrated
 
coverage teams
 
is visible
 
in our
 
ability to
 
win new
 
mandates, where
 
we
rank 7
th
 
globally in announced
 
M&A volumes, making for
 
an encouraging deal
 
pipeline.
 
While we expect
 
to
continue capturing
 
market share,
 
macro and
 
geopolitical factors
 
are likely
 
to weigh
 
on continued
 
sequential
Banking revenue growth in the near term.
Revenues in Markets reached 1.8
 
billion, the best second
 
quarter result in over a
 
decade, up 18% year-on-year
and driven by the Americas, up nearly 40%.
Equities revenues
 
were up
 
17%, driven
 
by both
 
Derivatives and Cash,
 
where we
 
have seen
 
material gains in
market share.
 
 
 
11
FRC
 
was
 
up
 
20%
 
with
 
broad
 
increases
 
across
 
FX,
 
credit
 
and
 
rates,
 
benefitting
 
from
 
higher
 
client
 
activity,
particularly in FX and rates options, partially offset by lower
 
activity and spread compression that affected our
rates flow business.
 
Operating
 
expenses
 
rose
 
12%,
 
predominantly
 
reflecting
 
higher
 
variable
 
compensation
 
linked
 
to
 
improved
performance.
Slide 14 – Non-core and Legacy
Moving to Slide 14.
 
Non-core and Legacy’s
 
pre-tax loss in the
 
quarter was 80 million,
 
supported by around 400
 
million in revenues,
principally from gains on position exits
 
across corporate credit and securitized products,
 
and further reductions
in the NCL cost base.
Underlying opex
 
was down
 
37% sequentially, helped by
 
releases in litigation
 
reserves of 172
 
million.
 
Excluding
litigation, operating expenses
 
declined by 17%, as
 
we made strong progress driving
 
down personnel costs and
third party spend.
NCL’s
 
six-month pre-tax
 
profit
 
of 117
 
million, which
 
far exceeds
 
earlier loss
 
expectations, demonstrates
 
the
business’s skillful management in de-risking
 
its portfolios and rapidly cutting its costs.
 
For the second half
 
of the year,
 
we expect an underlying pre
 
-tax loss of around
 
1 billion, reflecting moderate
short-term upside
 
to revenues,
 
and continued
 
sequential progress
 
on cost
 
reduction, albeit
 
at a
 
slower rate
 
than
observed over recent quarters.
Slide 15 – Strong progress on cost and balance sheet reductions in Non-core and
 
Legacy
Moving to slide 15.
Over the last
 
four quarters, NCL has
 
made impressive progress
 
running down its costs
 
across all lines,
 
cutting
its underlying operating expense base by over
 
2 billion, or around 50%.
 
NCL has
 
also excelled in
 
running down its
 
balance sheet positions,
 
significantly contributing to Group
 
capital
efficiency,
 
releasing 5 billion
 
in capital as
 
a result
 
of its efforts.
 
Additionally,
 
NCL has cut
 
its non-operational
risk-weighted assets by almost 60% over the last year, including by another 8 billion this
 
quarter, mainly from
actively
 
exiting
 
positions
 
across
 
its
 
portfolios,
 
notably
 
in
 
investment
 
grade
 
and
 
high-yield
 
corporate
 
credit,
securitized products, and macro.
 
Similarly,
 
NCL’s LRD is
 
down by over
 
60% since 2Q23,
 
dropping another 40
 
billion of leverage
 
exposure this
quarter,
 
reflecting lower notionals as
 
well as lower levels
 
of HQLA.
 
In terms of book
 
closures, NCL shuttered
another 10% of its active books in the quarter, bringing the total since last June
 
to around 45%.
 
Looking ahead, the progress we
 
are making is visible in
 
the natural roll-off profile,
 
significantly narrowing the
gap to our active run-down expectation of
 
around 5% of Group RWA by 2026.
Further supporting
 
this and
 
as additional
 
evidence of
 
NCL’s proficiency
 
in de-risking
 
its balance
 
sheet and
 
driving
down costs, yesterday we agreed to sell Credit Suisse’s US mortgage
 
servicing business.
 
This transaction is
 
 
12
expected
 
to
 
close
 
in
 
1Q25,
 
and
 
would
 
reduce
 
RWA
 
by
 
around
 
1.3
 
billion,
 
LRD
 
by
 
around
 
1.7
 
billion,
 
and
annualized costs by around 250 million.
Slide 16 – We are positioning UBS for sustainable growth and long-term
 
value creation
To summarize, the second
 
quarter demonstrated
 
the power, scale and
 
secular growth
 
potential of
 
our franchise
as
 
we
 
delivered
 
strong
 
underlying
 
profitability
 
and
 
continued
 
to
 
make
 
substantial
 
progress
 
across
 
our
integration agenda while reinforcing a balance sheet for
 
all seasons.
With that, let’s open for questions.
13
Analyst Q&A (CEO
 
and CFO)
Giulia Miotto, Morgan Stanley
Hi. Good morning. Thank you for
 
taking my questions. I'll ask two, please.
 
So my first one, thank you very
much for the guidance on NII in GWM which
 
was something the market was looking
 
forward to. Can I just
ask a clarification? If you look at the current forward curve,
 
when do you expect NII to bottom exactly?
 
Do
you think second half 2024 and then we
 
can grow, or possibly first half of 2025? So that's the first question.
And then the second question is, instead, on the
 
capital of the parent and in particular the CSI,
 
it seems to
have a lot of excess capital and upstreaming that
 
could reduce the impact of – the potential impact from the
proposal in Switzerland. Can we expect UBS to upstream
 
some of that capital or how are you thinking about
excess capital at subsidiaries? Thank you.
Todd
 
Tuckner
So, regarding the NII guidance in terms of the implied forward curve.
 
So as I mentioned, you know, we ended
up pricing in, as you saw, and modeled for a 25 basis point rate
 
cuts through the end of the year. If you look
out in, in terms when the implied forward curve would
 
suggest bottoming out, you know, we're probably
pricing in more like 7 depending on what you're looking at.
 
So, you know, I mean, from here, while difficult to speculate, it could be sometime in mid-2025,
 
but I spent
time what I think is really important to recognize is that,
 
you know, in a lower NII – lower interest rate
environment, there are significant offsets and tailwinds in the business that we
 
expect to see.
 
And that was a point that we wanted to
 
really ensure is well understood because ultimately transaction
revenues, re-leveraging and driving up NII from re-leveraging, and also recurring
 
fees from mandate sales, you
know, all have upside in an environment of lower interest rates. In terms of
 
the parent bank capital, you
mentioned our UK – Credit Suisse's UK subsidiary that
 
has excess capital, of course, we're working on
restructuring and on all of our subsidiaries where we can.
 
And ultimately, you know, we will as appropriate upstream the capital in any of the subsidiaries in order to
alleviate the capital at the parent bank.
Giulia Miotto, Morgan Stanley
Thank you.
Andrew Coombs, Citi
Good morning. Let's just drill down to
 
the areas where you've perhaps delivered ahead of expectations.
 
So
firstly, on the Non-core, another successful quarter of actively reducing the RWAs and some further gains on
some of those division exits. You're now talking about narrowing that gap in the natural runoff. So based on
the natural runoff you’ll be at 6% and you're aiming for
 
5%.
 
So I think that is only another USD 5 billion
 
inside of active RWA management in that business. And now
 
you
alluded to the close of the US mortgage servicing
 
business will get you some way towards that.
 
So, should we
assume that active management within the NCL
 
book is now largely complete or
 
will be largely complete by
the end of this year?
 
14
And then my second question is just on
 
costs. Previously, I think you were expecting to be at 50% by end
2024. You're now 55% guiding by end of 2024 of the total cost saving target of next
 
so USD 500 million of
cost saves you realized earlier than expected. Which division
 
is it that these cost are coming through earlier
than expected? And in your mind, is it purely just
 
a timing issue that coming through earlier as opposed
 
to a
quantum issue that you're delivering more cost savings
 
than expected? Thank you.
Todd
 
Tuckner
Yeah, thanks a lot, Andrew. On the second one in terms of on the costs and the performance and
outperformance we're continuing to see. I mean,
 
that's really driven, as I highlighted in my comments
 
by NCL
for sure, NCL is driven the lion's share of the gross cost saves to
 
date while the other divisions have
contributed, it has been really a function of their active
 
rundown of positions, but also the restructuring of
various parts of Credit Suisse as a G-SIB that we've
 
highlighted in the past is an important part of
 
taking out
the costs. And a lot of those costs reside, you know, in NCL. So, they've been
 
really the benefactor of the cost
performance. And as we look out towards the end
 
of the year, the additional progress that we anticipate,
even though, as I suggest, we expect a bit a moderate
 
deceleration in the gross cost saves, that's expected to
be yielded also by NCL. And as I highlighted,
 
you know, the core business divisions will then – the ratio of
core to non-core or non-core to core in terms of cost takeout will invert
 
as we get into the second half of the
integration agenda and we'll start to see the
 
significant cost reductions hitting through in particular
 
GWM
and P&C.
And just on the first, in terms of how we
 
see the natural runoff and the success we've had
 
in the quarter, you
know, of course, we're not counting on, you know, extrapolating and we take economic decisions
 
as they
arise and the opportunities arise. And so, you know, difficult to extrapolate the
 
great outcome that we've had
to date to suggest a different outcome than the natural roll-off. And that's
 
why we continue to disclose it.
 
So, you know, that becomes clear. What is important and Sergio commented this in his remarks that, you
know, the uncertainty delta continues to narrow. And that's what you know, I think it's important that, you
know, ultimately,
 
while we can't count on anything in
 
particular in terms of what can come off the balance
sheet of NCL, in terms of extrapolation, what
 
we can say is that the uncertainty delta has
 
narrowed very
significantly.
Andrew Coombs, Citigroup
That's clear. Thank you. I guess the follow on would just be your previous guidance was
 
for a typical run rate
of close to zero revenues from NCL per quarter and presuming that's
 
unchanged?
Todd
 
Tuckner
Yeah. As I said Andrew,
 
that we see in the long-term, that's
 
for sure the case in the short-term, i.e. the 2H
guidance that I offered, we see some modest upside to
 
current book values on the revenue side. So, some
modest uptake in driving the billion underlying
 
PBT loss guidance that I offered in my comments.
Andrew Coombs, Citigroup
Thank you.
Jeremy Sigee, BNP Paribas
Hi there. Thank you. Two questions, please. First one, just follows on from just exactly what you
 
were talking
about there, the guidance for the P&L drag from NCL.
 
Obviously, it's going better than expected, which is
 
15
great to see. What would we expect now – previously you
 
were talking about USD 2 billion P&L drag exit
 
rate
in 2025 and then USD 1 billion exiting 2026.
 
And obviously it's going much better
 
than that with sort of a
UBS 1 billion drag in the second half that you're integrating.
 
What should we expect for 2025? And
 
could the
NCL drag be finished within 2025 rather
 
than carrying on into 2026? Any update
 
on that would be really
helpful.
 
And then my second question, just a more sort
 
of specific one on investment banking costs.
 
They drifted up a
little bit more than revenues in the second quarter, it's not a big move, but the cost income deteriorated
against those strong revenues rather than perhaps you might
 
have hoped it could have improved a little bit.
So, any comments on the drivers, whether
 
there's any one-offs in there or anything unusual, just how we
should interpret that IB cost number, please
Todd
 
Tuckner
So, Jeremy, thanks. On the second one in the comp on IB costs, it's the comp quarter, of course, only has
Credit Suisse personnel in for a short period of time
 
for just the one month when you look
 
at the year-on-year
comp, whereas the current quarters as you know the people
 
we've added for the full quarters. So
 
that's
driving that that variance.
Jeremy Sigee, BNP Paribas
I'm sorry, speaking Q-on-Q, I think the costs are up 3% and the revenues are up 1%. So, I was thinking more
Q-on-Q.
Todd
 
Tuckner
On – yeah on Q-on-Q, it would be just some
 
compensation-related effects that were hitting through driving
the Q-on-Q. But I'd have to - Go back and
 
look at that. But really, it's more year-on-year that we focused on.
Jeremy Sigee, BNP Paribas
Which is variable. Okay.
Todd
 
Tuckner
On the – in terms of the guidance on the P&L
 
drag and in NCL, in terms of what
 
we should expect. Look, I
mean, we're really pleased with the performance we've
 
had to date, as I said in my last comments,
 
there's no
way to extrapolate from that performance is straight
 
line and to assume that that's
 
the, you know, the pace
of which will continue.
 
So, you know, we – our guidance remains, that's where in terms of the P&L drag
 
at the end of 2026 is right
now, still our best estimate when we come back and talk about
 
an outlook in the fourth quarter going
forward, you know, potentially we update that and see where we are. But for now, that's our best estimate
in terms of where we land.
Jeremy Sigee, BNP Paribas
Understood. Thank you very much.
Kian Abouhossein, JP Morgan
16
Yes, thanks for taking my questions. The first one is related to Wealth Management. First of
 
all, thanks again
for the disclosure. I hope some of the US peers
 
are listening as this was very helpful relative to what I heard
before from US peers. Sweep deposits last Disclosure was $35.7 billion.
 
I was wondering where we are
roughly right now in the US entity? If you could also
 
share – share with us the advisory part of that so we
 
can
kind of understand the adjustment factor
 
and what rate you are paying now versus what
 
rate you will be
paying for the fee deposits on this advisory mandates?
 
And in that context, if you could briefly talk
 
about
lending, which was down ex-US, just to understand
 
how much of that is related to adjustments of
 
your
offering to the CS client versus actually losses in lending?
 
And then the second question is on legal entity
 
on page 19, a very useful chart. And you
 
talk about further
legal entity simplification in the US as well
 
as the UK legal entity going into a branch,
 
I was wondering what
capital relief you expect from that or maybe even in subjective
 
terms, if you can talk a little bit about
 
the
changes that will happen in when you describe
 
it here on the page.
Todd
 
Tuckner
Thanks, Kian for the question. So on, in terms
 
of the second one, first, the simplification
 
that we talk about is
continuing in the UK and in the US, but also
 
in other parts of the world, to continue merging
 
subsidiaries out
of existence to create and unlock more capital, funding and
 
tax efficiencies, so that's what we're getting to.
So we're working all through that, you know, we just, of course, the big parent bank and
 
Swiss bank
mergers, we reparented the IHC, but now there's still a lot of work
 
that will continue to unlock these
benefits.
 
So in terms of capital relief, naturally, to the extent that, and this goes a little bit to the question
 
that was
asked earlier in terms of the repatriation of excess
 
capital, say in a subsidiary, of course, that is part of the
analysis that we go through as we work through it. But it's,
 
you know, there are contingencies to the timeline
in terms of what triggers and what the timing
 
could be to merge some of these
 
entities out of existence.
 
In terms of GWM, so, you know what I can
 
say on the sweep deposits, first of all, advisory
 
is about a third of
the total, the total that we have in sweeps.
 
So, just to give – to dimension that a bit, this
 
is I think that's
probably useful to understand. And then as far as
 
the pricing it goes, of course, the way
 
we're, first of all, it's
a function of interest rates because I mentioned
 
we're going to introduce the new rates in advisory in the
fourth quarter because we have to change
 
systems and go through some transitional work to
 
get there.
 
So, we have to see also where interest rates are. So in terms
 
of an absolute price that I can’t offer, but what I
can say is that we will for sure price in the value of the
 
insurance coverage we offer on deposits that benefit
from multiple programs, multiple bank programs and reciprocal programs that we've
 
invested in and that will
feature into the price of the rate we ultimately offer.
 
In terms lending balances ex-US the main
 
driver of that, I mean, you know, clearly we've seen deleveraging
 
in
a higher interest rate market for outside the US, particular
 
in APAC for several quarters running. You know,
we're looking forward and seeing some signs of tapering there, but
 
we continue to see that. As I highlighted,
you know, as rates come down, we do expect that should taper and then
 
start – we start to see clients re-
leverage. But so, the rate environment is driving some
 
of that but the other part of it, perhaps the more
significant driver is the financial resource optimization work
 
we're doing that, you know, a consequence of
that is that loans will roll off our platform, which is one
 
of the points I highlighted in connection with
 
the net
new asset report.
Kian Abouhossein, JP Morgan
17
And it's not just on sweep. I know that Morgan
 
Stanley has confirmed 2% rate to be paid.
 
Should we look at
similar rates and could you just also remind us of
 
where we are on the sweep volumes at the moment? Last
number we saw was $35.7 billion?
Todd
 
Tuckner
Yeah. What I can say Kian is that the number is across to come in a little bit and it's
 
driven – is in also some of
the comments I made on mix is driving the 2Q
 
result. So you could assume that number has come
 
a little bit
lower and all I could say, you know, get anything further on the rate is, you know, as mentioned competitive
dynamics you know will ultimately feature and
 
how we what – we ultimately settle on a
 
price – on price for
the sweep deposits.
 
So, you know, as I said, I gave some views on considerations that we –
 
that we will factor in. But as far as an
absolute price, you know, that's not at this point something that
 
we have settled on.
Kian Abouhossein, JP Morgan
Thanks.
Anke Reingen, RBC
Yeah, thank you very much for taking my question – questions. The first one is
 
just on the Basel IV impact of
the USD 25 billion on the 1st of January 2025.
 
I guess you said you will give us a
 
bit more detail with
potentially before year-end. But I mean, you previously talked about a USD 15 billion
 
net of, yeah, Non-core
rundown. Do you have a – can you give us a
 
better indication of how the USD 25
 
billion will actually look on
the 1
st
 
of January 2025?
 
And then, sorry, coming back on the NII guidance, just confirming the P&C reiterating
 
of guidance that's on
the US dollar basis rather than Swiss francs.
 
And just conceptually, I mean I see, I mean, you now assume
more rate cuts than before, but the guidance is reiterated. Can you
 
just maybe highlight what the missing
pieces that allows you to reiterate guidance? Thank you
 
very much.
Todd
 
Tuckner
Yeah, thanks, Anke. So on Basel III final, you know, as mentioned, we still expect a USD 25 billion impact
 
is
5% of risk-weighted assets. So in that range,
 
as you mentioned, we guided in the fourth
 
quarter in our
investor update that USD 15 billion is in the
 
core, USD 10 billion’s in non-core I think for now, that split
remains pretty robust in terms of how we're thinking, how we're seeing it, and
 
naturally will continue to
work down the NCL portfolio to make that
 
impact lessened over time.
 
In terms of the NII guidance for P&C, just, you
 
asked for clarity on – it is in Swiss francs
 
so we're guiding in
Swiss francs, we'll offer both in the future to sort of help,
 
as I mentioned in 3Q, we see low – a low-single-
digit down in Swissy, but flat sequentially in USD. And as I mentioned, you know, I think that's a good
outcome that we've had a number of headwinds
 
that we've been working through, so to reaffirm the
guidance for the full year is also a function
 
of some management actions that have
 
been taken, including
some loan repricing actions that have helped.
 
So those are the drivers of the NII guidance for P&C.
Anke Reingen, RBC
18
Sorry, just to follow up. So on the 1st of January 25, as the 25 – I mean, the 5%
 
increase in RWA or should it
be lower because some mitigation or NCL run
 
down has already kicked-in or reduced the impact?
Todd
 
Tuckner
No, no, the estimate is on the same basis
 
we gave it in 4Q terms of the impact because
 
it's mainly FRTB
driven. So for now assume the guidance
 
remains and as I said, if we have an update
 
before we go live with it
- of course we'll come back and provide it.
Anke Reingen, RBC
Okay. Thank you very much.
Chis Hallam, Goldman Sachs
Yeah, good morning and thanks for taking my questions. So first, you've
 
guided for banking to generate
almost twice the baseline revenues by 2026 assuming
 
supportive markets. So, obviously performance
 
was
very strong in the second quarter. But then we saw this period of elevated volatility at
 
the start of August. Has
that changed anything in terms of how
 
close we are now to supportive markets? And how
 
would you expect
the recovery to progress through the second half of this year?
 
And then second question, just on profitability, at the start of the year, you said you'd expect to get to
around 45% of the USD 13 billion gross savings by the
 
end of 2024, and you've got that by the end of
 
the
first half. And you also guided for mid-single-digit
 
underlying return on core tier one this year and mid to
 
high
for next year. Consensus is at 6% for this year and 9% for next year. But in the first half you're already above
9%. So how should we be thinking now about
 
the path for underlying return on core tier one through 2024
and 2025?
Sergio P.
 
Ermotti
Thank you, Chris. I'll take the first question.
 
So, look, you know, I think, of course, the market environment,
it's quite volatile and there are element of fragility that
 
we see. But, you know, what is most important for us
is to look through the short-term market dynamics.
 
And, you know, I can tell you that I'm very confident that
we are building up a very compelling pipeline in
 
terms of mandate that we win still not
 
announced and things
that can be then executed in a normalized
 
market environment.
 
So, of course, if we see the kind of the volatility
 
we had in a couple of weeks ago, that would
 
not be very
helpful for the pipeline. But in general, I'd
 
stay, you know,
 
I would say that - positive in respect of our
momentum. So, a good pipeline and good
 
momentum in winning mandates. But, of course,
 
it will also
depend on market conditions.
Todd
 
Tuckner
And Chris, on the second, in terms of a
 
return on core tier 1 and how it relates to our guidance. So,
 
you
know, as you mentioned, we initially guided it mid - for mid-single-digits
 
for 2024 and mid-to-high for 2025.
So naturally, if there's an update, we'll bring it to you and we talk about our 2025 expectations
 
later this year.
In terms of where we are, you know, as Sergio highlighted in his comments are the
 
first six months we
generated an underlying return on CET1
 
of 9.2%. So, obviously we're comfortably ahead
 
of the target of mid
for 2024.
Amit Goel, Mediobanca
19
Hi. Thank you. Thanks for taking my questions.
 
So one, just to follow up, just to make sure I also
 
had some of
the previous guidance correctly. And I think you mentioned the cost of the reprice on sweep to be about
USD 50 million annually. And so, I mean, I guess, given the one third advisory disclosure, that would
 
imply
only, you know,
 
just over 40 bps of incremental cost on that
 
portion and effectively nothing on the rest. So, I
mean I was just kind of curious, I mean, in a way
 
that you could continue to see outflows,
 
so I'm wondering
what the capacity is for the group to replace that funding
 
at similar cost?
 
And then also just linked to that, if I look then
 
at the total sweep and the cost of
 
the sweep, it seems like that
the earnings are pretty similar to what Wealth Management
 
Americas generates. So I'm just kind of
 
curious
how you think about Wealth Management Americas
 
profitability and with some of these headwinds, how
you think you'll get back to that mid-teens operating
 
margin?
 
And then secondly, just curious on the parent, you know, is there any scope to shift exposure from foreign
participations to domestic in addition to
 
capital repatriation? And, you know, whether that can be reflected in
participation values and, you know, if there is potentially will change coming.
 
Thank you.
Todd
 
Tuckner
Thanks, Amit. Yeah, in terms of the second one, shifting exposure domestically, you know, whether that
helps, it's way too early to speculate on how
 
we're going to address and what actions we take. We don't
know what the standards are. So, and where they'll move to mean –
 
where the standards will move,
assuming they move. And so to speculate
 
about what mitigating actions might
 
be available to us is way too
early.
Terms
 
of sweeps, yeah, I disclosed that the impact
 
on pre-tax profit is expected be around USD 50 million
annualized in the US Wealth Business. You know, I did say that that's net of offsetting factors. So, that
includes an array of banking initiatives and expense
 
programs across various categories. So, there, I wouldn't
take the USD 50 million as gross income, but actually, as I said, it is a net impact.
 
And I think, look, you know,
I saw interesting that you asked the question and
 
then, you know, lead to how we're going to address, you
know, the pre-tax margin issues. You know,
 
we – nothing has changed on that.
 
We're, you know, we're focused on that, we know we have to do. The sweep deposit
 
issue, you know, is a
modest hit on that, of course, because it's
 
something we're saying is adverse to PBT. We think it's
manageable and now we're getting on with the work
 
of improving the margins on the basis of how we
described that in the past. So, we know we
 
have to do there and we're taking steps to achieve that.
Benjamin Goy, Deutsche Bank
Hi, good morning. Two questions, please. So the first one on GWM in particular, America, the cost/income
ratio remains above 90% and it was better during
 
low interest rate times. So just wondering with
 
the mix
shift from NII, and NII falling [indiscernible]
 
most likely, you see upside to year-end 2026 cost/income ratio
improvement in target.
 
And then secondly on the capital side, you
 
obviously have the group guiding for 14% CET1,
 
but you see the
12.5% more the binding constraint and that's the
 
first half of the question.
 
The second, with Switzerland
being the only geography introducing FRTB and not
 
delaying it, do you think that's the
 
final piece of the
puzzle in terms of higher capital requirements for you?
 
Thank you.
Sergio P.
 
Ermotti
Let me take the second part of the question.
 
Of course, you know, with the 14% guidance we have right
now it stays as it is, and the 12.5%you mentioned
 
it look-through fully applied 2030 at current requirements,
 
20
we will see exactly how things develop in the next
 
few quarters in terms of future requirements. From FRTB
standpoint of view, of course, as you mentioned, Switzerland will
 
introduce that on January 1. It will be a
short-term competitive disadvantage, we don't
 
believe it's – we believe it's manageable short-term.
 
Of course, this, should other jurisdictions not
 
converge, not to converge to Basel III full
 
implementation over
the next couple of years then, of course, that
 
would be – it will be more problematic and we would need
 
to
think about how to address this matter. So, we remain confident that we will be able to have a level playing
field in how we operate and compete globally. But it remains to be seen.
Todd
 
Tuckner
And Benjamin, here's how we think about the – your
 
cost/income ratio question for GWM. You know, we're
– we have a look through cost to income ratio presently
 
of around 80%. You know,
 
naturally when we plan
the USD 13 billion of gross cost saves and the
 
less than 70% cost income ratio, GWM factors
 
in quite
prominently in that piece of work.
And that's why, you know, I've highlighted that the cost income ratio will be benefited by the work that
 
just
going to get going in the next quarter or two,
 
which is the client account migration work
 
and platform
consolidation starting in APAC and parts of Europe before the Swiss booking center.
 
That will drive significant cost down and ultimately, you know, which is why I believe that Wealth and P&C
will benefit significantly in the latter half of
 
the integration work. So in terms of where we
 
get our cost
income ratio, it will – GWM's cost to income ratio
 
in the end will be a big contributor to the
 
group meeting
its target of less than 70% by the end of 2026.
Benjamin Goy, Deutsche Bank
Thanks for that. This was in particular on the
 
Americas for GWM Americas, but you probably
 
won't see much
of a cost save benefit, but correct me if I'm wrong. Yeah, indeed from the 90 – from the 90% right now,
more towards the 85%, accelerate with the different revenue mix?
Todd
 
Tuckner
Question was on the Americas, sorry I didn’t
 
hear it. Look, as I said also to the before and
 
I've said previously,
we're working towards the mid-teens profit margin over the next
 
couple of years. That's where, you know,
we know we have to narrow the gap where we are, that's where we are working towards.
 
And that also
features into the, you know, the less than 70% cost/income ratio by the end
 
of 2026, getting to that level.
So, you know, nothing that I've guided to today has changed any
 
of that. We're very focused on taking the
steps to achieve that by that in that timeframe.
Benjamin Goy, Deutsche Bank
Thank you.
Tom
 
Hallet, KBW
Hi. Thanks for taking my questions. Just
 
– what do you assume in terms of loan and deposit
 
growth in the
Swiss business NII guide and your GWM growth in
 
the second half of the year? And then
 
secondly, how do
you see deposit mix shift and deposit betas evolving
 
within that guide as well? Thank you.
Todd
 
Tuckner
21
Yeah, thanks, Tom.
 
So in terms of – in terms of volumes in each
 
of the businesses, you know, I expect loans
in both of the businesses through the end of 2024
 
to come slightly in, largely because of
 
the balance sheet
work that I highlighted in my comments. So,
 
I think in both cases, loans would come in.
 
I see deposits as well
through on the GWM side as well towards the end of the
 
year.
 
I mean, roughly flat at this point, I see P&C growing deposits
 
whether, you know,
 
through the rest of this
year but certainly as we look out over the longer
 
term. So, I would say a little bit of
 
downward pressure in
terms of loans in large part just given the balance
 
sheet work that we're doing.
 
On a deposit side, I see more of sort of flat to
 
growing in the near to mid-term in terms of the balance
 
sheet.
And in terms of, deposit mix shifts look, I think
 
in the end we're, you know, we've been seeing as many
banks have the effects of deposit mix and cash sorting
 
and rotation for some period of time, you know, as
rates start to come down, we expect that the
 
cash sorting will continue to taper and it'll
 
be less of an impact
in terms of the NII.
 
And, you know, that's a little bit of what we're seeing in our outlook is just
 
given the fact that we expect and
are modeling rates coming in, that we are seeing sort of
 
in a way, the last vestige of mix shifts, though, as
while rates remain a bit higher. So that's how we see the deposit mix shift evolving.
Tom
 
Hallet, KBW
Thank you.
Sergio P.
 
Ermotti
Okay, there are
 
no more questions. Thank you all for calling in and
 
your questions. And see you in end of
October for the Q3 results. Thank you.
 
22
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UBS Group AG
By:
 
/s/ David Kelly
 
_
Name:
 
David Kelly
Title:
 
Managing Director
 
By:
 
/s/ Ella Campi
 
_
Name:
 
Ella Campi
Title:
 
Executive Director
UBS AG
By:
 
/s/ David Kelly
 
_
Name:
 
David Kelly
Title:
 
Managing Director
 
By:
 
/s/ Ella Campi
 
_
Name:
 
Ella Campi
Title:
 
Executive Director
Date:
 
August 15, 2024