UBS 2Q net profit up 53% to CHF 1.2 billion Montag, 27. Juli 2015 - 06:04

Adjusted¹ profit before tax CHF 1.6 billion

Diluted earnings per share CHF 0.32

Net profit attributable to shareholders up 73% to CHF 3.2 billion in 1H15

12.0% adjusted¹ annualized return on tangible equity in 1H15

Industry-leading fully applied Basel III CET1 ratio up 70 bps to 14.4%

Fully applied Swiss SRB leverage ratio up 10 bps to 4.7%

53,000 hours volunteered by UBS staff in 1H15

Group service company subsidiary to be established in 3Q15

Zurich/Basel, 27 July 2015 – UBS delivered a robust second-quarter adjusted¹ profit before tax of CHF 1,635 million despite continued market and economic uncertainty, again demonstrating its fundamental earnings power and the strength of its business model. Net profit attributable to UBS Group AG shareholders was CHF 1,209 million, up 53% compared with the second quarter of 2014, with diluted earnings per share of CHF 0.32.

“I am pleased with the quarter. We maintained our momentum despite ongoing market challenges, and establishing UBS Switzerland AG was another major milestone in enhancing resolvability. We remain focused on building on our early mover advantage with a clear strategy, while increasing effectiveness and efficiency, and further investing for profitable growth.”

Sergio P. Ermotti, Group Chief Executive Officer

Business division highlights

• Wealth Management delivered its best second-quarter result since 2009, with an adjusted¹profit before tax of CHF 769 million and robust net new money of CHF 8.4 billion excluding the effects of its balance sheet and capital optimization program. On a reported basis, net new money was CHF 1.8 billion.
• Wealth Management Americas posted an adjusted¹ profit before tax of USD 231 million, with operating income and financial advisor productivity at record levels.
• Retail & Corporate had its best second quarter since 2010, with an adjusted¹ profit before tax of CHF 414 million showing strong net new business volume growth for retail clients.
• Global Asset Management reported an adjusted¹ profit before tax of CHF 134 million and strong net new money of CHF 8.3 billion, excluding money market flows.
• The Investment Bank reported an adjusted¹profit before tax of CHF 617 million with the best second-quarter result in Equities since 2012. It achieved an adjusted¹ return on attributed equity of 33.8% without increasing its risk profile.

Information in this release is presented for UBS Group AG on a consolidated basis unless otherwise specified. Key figures for UBS AG are included at the end of this release. Financial information for UBS AG does not differ materially from UBS Group AG. UBS AG will publish its consolidated quarterly financial statements in electronic form only on 31 July 2015. These will be made available atwww.ubs.com/quarterlyreporting

Group, divisional and Corporate Center performance overview

Overall, UBS’s second quarter again demonstrated the resilience and diversification of its earnings, the strength of its business model, and the benefits of a strategy defined early and executed with discipline.

UBS Group reported a net profit attributable to shareholders of CHF 1,209 million, up 53% compared with the second quarter 2014, with diluted earnings per share of CHF 0.32. Group adjusted¹ profit before tax was CHF 1,635 million, with positive contributions from all divisions and regions. Adjusted¹ annualized return on tangible equity for the first six months of 2015 was 12.0%, above the 2015 target of around 10%.

The bank strengthened its leading capital position, with a fully applied Basel III CET1 capital ratio of 14.4% at the end of June, above the target of at least 13.0% and ahead of all other large global banks. Its fully applied Swiss SRB leverage ratio rose to 4.7% in the second quarter, as the Swiss SRB leverage ratio denominator (LRD, fully applied) decreased by CHF 33 billion partly reflecting a substantial reduction in Non-core and Legacy Portfolio assets. Since the third quarter of 2012, UBS has reduced the Non-core and Legacy Portfolio LRD from CHF 293 billion to CHF 70 billion.

The creation of UBS Group AG and UBS Switzerland AG were major milestones to improve the Group's resolvability, in response to the evolving regulatory environment. In June, some 2.7 million clients and approximately CHF 300 billion in assets, primarily from the Swiss Retail & Corporate and Wealth Management businesses, were transferred into UBS Switzerland AG. UBS is the first bank to complete this step in Switzerland. UBS has also implemented a more self-sufficient business and operating model for UBS Limited in the UK, and has submitted plans for the establishment of an intermediate holding company in the US. In the third quarter, UBS will establish a Group service company as a subsidiary of UBS Group AG, into which shared services and support functions of the Group will be transferred over the next several years. This will help ensure the bank can maintain the operational continuity of these critical services in case of resolution. All these measures will allow UBS to qualify for a rebate on the progressive buffer capital requirement applicable to Swiss systemically relevant banks, which should result in lower overall regulatory capital requirements for the Group.

UBS was honored to receive the Euromoney Award for Excellence for Best Global Wealth Manager and, for the fourth year running, Best Bank in Switzerland. In addition, Euromoneynamed UBS Investment Bank the Best Flow House in North America and Best Equity House in Western Europe, underlining the success of its client-centric model. UBS Neo, the firm’s cross-asset e-commerce platform, was named Best Platform at the annual Digital FX Awards hosted byProfit & Loss magazine.

Wealth Management delivered its best second-quarter result since 2009 with an adjusted¹profit before tax of CHF 769 million. The business continued to generate high-quality earnings, with an increase in recurring income reflecting continued success in its strategic initiatives to grow loans and increase mandate penetration, as well as further pricing measures. Adjusted net new money was robust at CHF 8.4 billion, driven by inflows from all regions and segments, most notably its market-leading Asia Pacific franchise, as well as from Ultra High Net Worth clients. The balance sheet and capital optimization program implemented in the first half of 2015 led to net new money outflows of CHF 6.6 billion during the quarter. On a reported basis, net new money was CHF 1.8 billion.

Wealth Management Americas reported an adjusted¹ profit before tax of USD 231 million. Total operating income and recurring net fees increased to record levels, and financial advisor productivity remained industry-leading, while pre-tax profit was affected by higher charges for provisions for litigation, regulatory and similar matters and other provisions. Net new money was slightly negative at USD 0.7 billion, reflecting seasonal outflows of approximately USD 3.9 billion associated with income tax payments.

Retail & Corporate posted its best second-quarter result since 2010, with an adjusted¹profit before tax of CHF 414 million. The net new business volume growth for retail clients was particularly strong for a second quarter. Credit loss expenses were lower, while general and administrative expenses increased mainly due to higher charges for provisions in the Corporate & Institutional client business.

Global Asset Management recorded strong net new money of CHF 8.3 billion excluding money market flows, with net inflows from third-party clients more than doubling compared to the prior quarter. Adjusted¹ profit before tax was CHF 134 million. The quarter saw an increase in net management fees mainly in traditional investments and global real estate, offset by a decline in performance fees in O’Connor and A&Q, in line with market developments in the alternative asset management sector.

The Investment Bank achieved a solid result with an adjusted¹ profit before tax of CHF 617 million, following very strong results in the first quarter. Investor Client Services benefited from the best second-quarter result in Equities since UBS accelerated its strategy in 2012, and a solid performance in FX, rates and credit, despite lower client activity and after exceptionally high FX revenues in the first quarter. Corporate Client Solutions improved on the back of higher revenues mainly in debt and equity capital markets and advisory. The business maintained risk profile and allocated resource limits discipline and its results once again demonstrated the strength of its business model and client-centric approach. Adjusted¹ return on attributed equity for the second quarter was 33.8%.

Corporate Center – Services recorded a loss before tax of CHF 253 million. Corporate Center – Group Asset and Liability Management reported a profit before tax of CHF 132 million.Corporate Center – Non-core and Legacy Portfolio recorded a loss before tax of CHF 145 million, achieving further progress in de-risking its balance sheet with RWA and the Swiss SRB leverage ratio denominator decreasing by CHF 4 billion and CHF 14 billion respectively.

UBS aims to create long-term value for its investors and clients, while making a positive contribution to the communities in which it operates. In June, for example, UBS launched a campaign to engage up to 50% of its Americas workforce in volunteering programs. To date, UBS Americas employees contributed around 20,000 hours of their time – approximately 70% of 2014's full-year total – volunteering across the Americas. Combined with the time volunteered by other UBS staff around the world, around 53,000 hours were logged in the first half of 2015 to support volunteering programs and give back to society.

Outlook

As in previous years, seasonal impacts are likely to affect revenues and profits in the third quarter. In addition, many of the underlying macroeconomic challenges and geopolitical issues that we have previously highlighted remain and are unlikely to be resolved in the foreseeable future. Despite ongoing and new challenges, we continue to be committed to the disciplined execution of our strategy in order to ensure the firm’s long-term success and to deliver sustainable returns for our shareholders.

¹ Please refer to the "Adjusted results" section at the end of this news release for information on adjusted results.

Additional information

UBS expects to revalue its deferred tax assets (DTA) in the third quarter of 2015 as part of its annual planning process, and may consider extending the forecast period for US DTA recognition to seven years from six years. If a determination to change the forecast period is made, the combined effect of updated business forecasts and the extension of the forecast period for US DTA could result in a net upward DTA revaluation of around CHF 1.5 billion.

Consistent with changes in the manner in which operating segment performance is assessed, beginning in the second quarter of 2015, UBS now applies fair value accounting for certain internal funding transactions between Corporate Center – Group ALM and the Investment Bank and Corporate Center – Non-core and Legacy Portfolio rather than applying amortized cost accounting. This treatment better aligns with the mark-to-market basis on which these internal transactions are risk managed within the Investment Bank and Corporate Center – Non-core and Legacy Portfolio. The terms of the funding transactions remain otherwise unchanged. In connection with this change, UBS now presents own credit gains and losses on financial liabilities designated at fair value in Corporate Center – Group ALM instead of Corporate Center – Services.  Prior periods have been restated to reflect these changes.

As a result of ongoing efforts to optimize our legal entity structure, UBS anticipates that some foreign currency translation gains and losses previously booked directly into equity through other comprehensive income will be released into profit and loss due to the sale or closure of branches and subsidiaries. In the second half of 2015, UBS expects to record net foreign currency translation losses of around CHF 120 million related to these disposals, although gains and losses could be recognized in different periods. Consistent with past practice, these gains and losses will be treated as adjusting items. The release of foreign currency translation losses to profit and loss will not affect shareholders' equity or regulatory capital.

In the second quarter of 2015, UBS's progressive capital buffer requirement for 2019 was reduced to 4.5% from 5.4%, reflecting updated LRD and market share information for 2014 provided by FINMA in June 2015. As a result UBS's total capital requirement on a fully-applied basis decreased to 17.5% for 2019 and 12.6% on a phase-in basis as of 30 June 2015.

UBS believes that the industry continues to operate in an environment where charges associated with litigation, regulatory and similar matters will remain elevated for the foreseeable future and the bank continues to be exposed to a number of significant claims and regulatory matters.

Quarterly Report and Presentation

In order to be transparent and counter certain incorrect and misleading information that has become public, UBS chose to release its second quarter 2015 results one day early.

UBS’s second quarter 2015 slide presentation will be available from 06:00 CEST on Monday, 27 July 2015 at www.ubs.com/quarterlyreporting. The Second Quarter Report and letter to shareholders will be available from 06:45 CEST on Tuesday, 28 July 2015 atwww.ubs.com/quarterlyreporting.

UBS will hold a presentation of its second quarter 2015 results on Monday, 27 July 2015. The results will be presented by Sergio P. Ermotti, Group Chief Executive Officer, Tom Naratil, Group Chief Financial Officer and Group Chief Operating Officer, Caroline Stewart, Global Head of Investor Relations, and Hubertus Kuelps, Group Head of Communications & Branding.

Time

• 10:00–12.00 (CEST)
• 09:00–11.00 (BST)
• 04:00–06.00 (US EDT)

Audio webcast

The presentation for analysts can be followed live on www.ubs.com/quarterlyreporting with a simultaneous slide show.

Webcast playback

An audio playback of the results presentation will be made available at www.ubs.com/investorslater in the day.

UBS Group AG and UBS AG

www.ubs.com

Cautionary statement regarding forward-looking statements – 2Q15 
This release contains statements that constitute “forward-looking statements,” including but not limited to management’s outlook for UBS’s financial performance and statements relating to the anticipated effect of transactions and strategic initiatives on UBS’s business and future development. While these forward-looking statements represent UBS’s judgments and expectations concerning the matters described, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from UBS’s expectations. These factors include, but are not limited to: (i) the degree to which UBS is successful in executing its announced strategic plans, including its cost reduction and efficiency initiatives and its planned further reduction in its Basel III risk-weighted assets (RWA) and leverage ratio denominator (LRD), and to maintain its stated capital return objective; (ii) developments in the markets in which UBS operates or to which it is exposed, including movements in securities prices or liquidity, credit spreads, currency exchange rates and interest rates and the effect of economic conditions and market developments on the financial position or creditworthiness of UBS’s clients and counterparties, and the degree to which UBS is successful in implementing changes to its business to meet changing market, regulatory and other conditions; (iii) changes in the availability of capital and funding, including any changes in UBS’s credit spreads and ratings, or arising from requirements for bail-in debt or loss-absorbing capital; (iv) changes in or the implementation of financial legislation and regulation in Switzerland, the US, the UK and other financial centers that may impose, or result in, more stringent capital (including leverage ratio), liquidity and funding requirements, incremental tax requirements, additional levies, limitations on permitted activities, constraints on remuneration or other measures; (v) uncertainty as to when and to what degree the Swiss Financial Market Supervisory Authority (FINMA) will approve reductions to the incremental RWA resulting from the supplemental operational risk capital analysis mutually agreed to by UBS and FINMA, or will approve a limited reduction of capital requirements due to measures to reduce resolvability risk; (vi) the degree to which UBS is successful in establishing a US intermediate holding company and implementing the US enhanced prudential standards, completing the squeeze-out of minority shareholders of UBS AG, and other changes which UBS may make in its legal entity structure and operating model, including the possible consequences of such changes and other similar changes that have been made previously, and the potential need to make further changes to the legal structure or booking model of UBS Group in response to legal and regulatory requirements, including capital requirements, resolvability requirements and proposals in Switzerland and other countries for mandatory structural reform of banks; (vii) changes in UBS’s competitive position, including whether differences in regulatory capital and other requirements among the major financial centers will adversely affect UBS’s ability to compete in certain lines of business; (viii) changes in the standards of conduct applicable to our businesses that may result from new regulation or new enforcement of existing standards, including measures to impose new or enhanced duties when interacting with customers or in the execution and handling of customer transactions; (ix) the liability to which UBS may be exposed, or possible constraints or sanctions that regulatory authorities might impose on UBS, due to litigation, contractual claims and regulatory investigations; (x) the effects on UBS’s cross-border banking business of tax or regulatory developments and of possible changes in UBS’s policies and practices relating to this business; (xi) UBS’s ability to retain and attract the employees necessary to generate revenues and to manage, support and control its businesses, which may be affected by competitive factors including differences in compensation practices; (xii) changes in accounting or tax standards or policies, and determinations or interpretations affecting the recognition of gain or loss, the valuation of goodwill, the recognition of deferred tax assets and other matters; (xiii) limitations on the effectiveness of UBS’s internal processes for risk management, risk control, measurement and modeling, and of financial models generally; (xiv) whether UBS will be successful in keeping pace with competitors in updating its technology, particularly in trading businesses; (xv) the occurrence of operational failures, such as fraud, misconduct, unauthorized trading and systems failures; (xvi) restrictions to the ability of subsidiaries of the Group to make loans or distributions of any kind, directly or indirectly, to UBS Group AG; and (xvii) the effect that these or other factors or unanticipated events may have on our reputation and the additional consequences that this may have on our business and performance. The sequence in which the factors above are presented is not indicative of their likelihood of occurrence or the potential magnitude of their consequences. Our business and financial performance could be affected by other factors identified in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2014. UBS is not under any obligation to (and expressly disclaims any obligation to) update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.

Adjusted results
Unless otherwise indicated, second-quarter 2015 "adjusted" figures exclude each of the following items, to the extent applicable, on a Group and business division level: an own credit gain of CHF 259 million, a gain of CHF 56 million on the sale of UBS's Belgian domestic Wealth Management business, a gain from a further partial sale of our investment in Markit of CHF 11 million, as well as net restructuring charges of CHF 191 million and an impairment of an intangible asset of CHF 11 million. For the first quarter of 2015, the items we excluded were an own credit gain of CHF 226 million, gains on sales of real estate of CHF 378 million and a gain of CHF 141 million on the sale of a subsidiary, as well as net restructuring charges of CHF 305 million. Adjusted results are non-GAAP financial measures as defined by SEC regulations. Please refer to the "Group performance" section of the Second Quarter 2015 Report for more information on adjusted results.

Rounding
Numbers presented throughout this release may not add up precisely to the totals provided in the tables and text. Percentages, percent changes and absolute variances are calculated based on rounded figures displayed in the tables and text and may not precisely reflect the percentages, percent changes and absolute variances that would be derived based on figures that are not rounded.

Tables
Within tables, blank fields generally indicate that the field is not applicable or not meaningful, or that information is not available as of the relevant date or for the relevant period. Zero values generally indicate that the respective figure is zero on an actual or rounded basis.