6-K 1 6kubsgroupag2q19.htm 6kubsgorupag2q19

 



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: July 23, 2019

 

UBS Group AG

Commission File Number: 1-36764

 

UBS AG

Commission File Number: 1-15060

 

 

(Registrants' Name)

 

Bahnhofstrasse 45, Zurich, Switzerland

Aeschenvorstadt 1, Basel, Switzerland

(Address of principal executive offices)

 

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 Second Quarter 2019 Report of UBS Group AG, which appears immediately following this page.

 

  

 


 

  

Our financial results

 

Second quarter 2019  report 

 

 


 

  

 


 

Corporate calendar UBS Group AG

 

1.

UBS
Group

4

Recent developments

6

Group performance

   

2.

UBS business divisions and
Corporate Center

20

Global Wealth Management

23

Personal & Corporate Banking

28

Asset Management

31

Investment Bank

35

Corporate Center

   

3.

Risk, treasury and capital
management

39

Risk management and control

43

Balance sheet, liquidity and funding management

47

Capital management

   

4.

Consolidated
financial statements

61

UBS Group AG interim consolidated financial statements (unaudited)

103

UBS AG interim consolidated financial information (unaudited)

   

5.

Significant regulated subsidiary and sub-group information

107

Financial and regulatory key figures for our significant regulated subsidiaries and sub-groups

 

 

 

Appendix

 

 

109

Abbreviations frequently used in
our financial reports

112

Information sources

113

Cautionary statement

 

 

   
Publication of the third quarter 2019 report:                         Tuesday, 22 October 2019
Publication of the fourth quarter 2019 report:                      Tuesday, 21 January 2020
Publication of the Annual Report 2019:                               Friday, 28 February 2020
Publication of the first quarter 2020 report:                          Tuesday, 28 April 2020

Corporate calendar UBS AG*

Publication of the second quarter 2019 report:                     Friday, 26 July 2019

*Publication dates of further quarterly and annual reports and results will be made available as part of the corporate calendar of UBS AG at www.ubs.com/investors

 

Contacts

Switchboards

For all general inquiries
www.ubs.com/contact 

Zurich +41-44-234 1111
London +44-207-567 8000
New York +1-212-821 3000
Hong Kong +852-2971 8888

Singapore +65-6495 8000

Investor Relations

UBS’s Investor Relations team supports
institutional, professional and retail
investors from our offices in Zurich,
New York and Krakow.

UBS Group AG, Investor Relations
P.O. Box, CH-8098 Zurich, Switzerland

www.ubs.com/investors

Zurich +41-44-234 4100
New York +1-212-882 5734

Media Relations

UBS’s Media Relations team supports
global media and journalists from our
offices in Zurich, London, New York
and Hong Kong.

www.ubs.com/media

Zurich +41-44-234 8500
mediarelations@ubs.com

London +44-20-7567 4714
ubs-media-relations@ubs.com

New York +1-212-882 5858
mediarelations-ny@ubs.com

Hong Kong +852-2971 8200
sh-mediarelations-ap@ubs.com


Office of the Group Company Secretary

The Group Company Secretary receives
inquiries on compensation and related
issues addressed to members of the
Board of Directors.

UBS Group AG, Office of the Group Company Secretary
P.O. Box, CH-8098 Zurich, Switzerland

sh-company-secretary@ubs.com

+41-44-235 6652

Shareholder Services

UBS’s Shareholder Services team, a unit
of the Group Company Secretary office,
is responsible for the registration of UBS Group AG registered shares.

UBS Group AG, Shareholder Services
P.O. Box, CH-8098 Zurich, Switzerland

sh-shareholder-services@ubs.com

+41-44-235 6652

US Transfer Agent

For global registered share-related
inquiries in the US.

Computershare Trust Company NA
P.O. Box 505000
Louisville, KY 40233-5000, USA

Shareholder online inquiries:
https://www-us.computershare.com/ investor/Contact

Shareholder website:
www.computershare.com/investor

Calls from the US
+1-866-305-9566
Calls from outside the US
+1-781-575-2623
TDD for hearing impaired
+1-800-231-5469
TDD for foreign shareholders
+1-201-680-6610

Imprint

Publisher: UBS Group AG, Zurich, Switzerland | www.ubs.com
Language: English

© UBS 2019. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

 

 

  

 


Second quarter 2019 report

Our key figures

 

 

As of or for the quarter ended

 

As of or year-to-date

USD million, except where indicated

 

30.6.19

31.3.19

31.12.18

30.6.18

 

30.6.19

30.6.18

Group results

 

 

 

 

 

 

 

 

Operating income

 

 7,532 

 7,218 

 6,972 

 7,644 

 

 14,750 

 15,812 

Operating expenses

 

 5,773 

 5,672 

 6,492 

 5,938 

 

 11,445 

 12,007 

Operating profit / (loss) before tax

 

 1,759 

 1,546 

 481 

 1,706 

 

 3,305 

 3,806 

Net profit / (loss) attributable to shareholders

 

 1,392 

 1,141 

 315 

 1,382 

 

 2,533 

 2,948 

Diluted earnings per share (USD)1

 

 0.37 

 0.30 

 0.08 

 0.36 

 

 0.67 

 0.76 

Profitability and growth2

 

 

 

 

 

 

 

 

Return on equity (%)3

 

 10.4 

 8.6 

 2.4 

 10.5 

 

 9.5 

 11.2 

Return on tangible equity (%)4

 

 11.9 

 9.8 

 2.7 

 12.0 

 

 10.8 

 12.8 

Return on common equity tier 1 capital (%)5

 

 16.0 

 13.3 

 3.7 

 16.1 

 

 14.6 

 17.2 

Return on risk-weighted assets, gross (%)6

 

 11.4 

 10.9 

 10.8 

 11.8 

 

 11.1 

 12.3 

Return on leverage ratio denominator, gross (%)6

 

 3.3 

 3.2 

 3.1 

 3.3 

 

 3.3 

 3.5 

Cost / income ratio (%)7

 

 76.5 

 78.4 

 92.4 

 77.4 

 

 77.4 

 75.7 

Adjusted cost / income ratio (%)8

 

 76.1 

 77.9 

 92.2 

 75.9 

 

 77.0 

 75.6 

Net profit growth (%)9

 

 0.7 

 (27.1) 

 

 19.9 

 

 (14.1) 

 22.6 

Resources

 

 

 

 

 

 

 

 

Total assets

 

 968,728 

 956,579 

 958,489 

 952,817 

 

 968,728 

 952,817 

Equity attributable to shareholders

 

 53,180 

 53,667 

 52,928 

 51,210 

 

 53,180 

 51,210 

Common equity tier 1 capital10

 

 34,948 

 34,658 

 34,119 

 34,116 

 

 34,948 

 34,116 

Risk-weighted assets10

 

 262,135 

 267,556 

 263,747 

 254,603 

 

 262,135 

 254,603 

Common equity tier 1 capital ratio (%)10

 

 13.3 

 13.0 

 12.9 

 13.4 

 

 13.3 

 13.4 

Going concern capital ratio (%)10

 

 19.1 

 18.5 

 17.5 

 17.8 

 

 19.1 

 17.8 

Total loss-absorbing capacity ratio (%)10

 

 33.3 

 32.7 

 31.7 

 32.3 

 

 33.3 

 32.3 

Leverage ratio denominator10

 

 911,379 

 910,993 

 904,598 

 910,383 

 

 911,379 

 910,383 

Common equity tier 1 leverage ratio (%)10

 

 3.83 

 3.80 

 3.77 

 3.75 

 

 3.83 

 3.75 

Going concern leverage ratio (%)10

 

 5.5 

 5.4 

 5.1 

 5.0 

 

 5.5 

 5.0 

Total loss-absorbing capacity leverage ratio (%)10

 

 9.6 

 9.6 

 9.3 

 9.0 

 

 9.6 

 9.0 

Liquidity coverage ratio (%)11

 

 145 

 153 

 136 

 144 

 

 145 

 144 

Other

 

 

 

 

 

 

 

 

Invested assets (USD billion)12

 

 3,381 

 3,318 

 3,101 

 3,271 

 

 3,381 

 3,271 

Personnel (full-time equivalents)

 

 66,922 

 67,481 

 66,888 

 63,684 

 

 66,922 

 63,684 

Market capitalization13,14

 

 43,491 

 45,009 

 45,907 

 57,654 

 

 43,491 

 57,654 

Total book value per share (USD)13

 

 14.53 

 14.45 

 14.35 

 13.73 

 

 14.53 

 13.73 

Total book value per share (CHF)13,15

 

 14.18 

 14.39 

 14.11 

 13.61 

 

 14.18 

 13.61 

Tangible book value per share (USD)13

 

 12.72 

 12.67 

 12.55 

 12.00 

 

 12.72 

 12.00 

Tangible book value per share (CHF)13,15

 

 12.42 

 12.62 

 12.33 

 11.90 

 

 12.42 

 11.90 

1 Refer to “Note 9 Earnings per share (EPS) and shares outstanding” in the “Consolidated financial statements” section of this report for more information.    2 Refer to the “Performance targets and measurement” section of our Annual Report 2018 for more information on our performance targets.    3 Calculated as net profit attributable to shareholders (annualized as applicable) / average equity attributable to shareholders.    4 Calculated as net profit attributable to shareholders (annualized as applicable) / average equity attributable to shareholders less average goodwill and intangible assets. Effective 1 January 2019, the definition of the numerator for return on tangible equity has been revised to align with numerators for return on equity and return on CET1 capital; i.e., we no longer adjust for amortization and impairment of goodwill and intangible assets. Prior periods have been restated.    5 Calculated as net profit attributable to shareholders (annualized as applicable) / average common equity tier 1 capital.    6 Calculated as operating income before credit loss expense or recovery (annualized as applicable) / average risk-weighted assets and average leverage ratio denominator, respectively.    7 Calculated as operating expenses / operating income before credit loss expense or recovery.    8 Calculated as adjusted operating expenses / adjusted operating income before credit loss expense or recovery.    9 Calculated as change in net profit attributable to shareholders from continuing operations between current and comparison periods / net profit attributable to shareholders from continuing operations of comparison period.    10 Based on the Swiss systemically relevant bank framework as of 1 January 2020. Refer to the “Capital management” section of this report for more information.    11 Refer to the “Balance sheet, liquidity and funding management” section of this report for more information.    12 Includes invested assets for Global Wealth Management, Asset Management and Personal & Corporate Banking.    13 Refer to “UBS shares” in the “Capital management” section of this report for more information.    14 Beginning with our Annual Report 2018, the calculation of market capitalization has been amended to reflect total shares outstanding multiplied by the share price at the end of the period. The calculation was previously based on total shares issued multiplied by the share price at the end of the period. Market capitalization has been reduced by USD 2.1 billion as of 31 December 2018 and by USD 1.9 billion as of 30 June 2018 as a result.    15 Total book value per share and tangible book value per share in Swiss francs are calculated based on a translation of equity under our US dollar presentation currency. As a consequence of the restatement to a US dollar presentation currency, amounts may differ from those originally published in our quarterly and annual reports.

 

Performance measures: reasons for use

Return on equity                                               This measure provides information on the profitability of the business in relation to equity.

Return on tangible equity                                 This measure provides information on the profitability of the business in relation to tangible equity.

Return on common equity tier 1 capital                   This measure provides information on the profitability of the business in relation to common equity tier 1 capital.

Return on risk-weighted assets, gross              This measure provides information on the revenues of the business in relation to risk-weighted assets.

Return on leverage ratio denominator, gross           This measure provides information on the revenues of the business in relation to leverage ratio denominator.

Cost / income ratio                                           This measure provides information on the efficiency of the business by comparing operating expenses with gross income.

Adjusted cost / income ratio                             This measure provides information on the efficiency of the business by comparing operating expenses with gross income, while              excluding items that management believes are not representative of the underlying performance of the businesses.

Net profit growth                                             This measure provides information on profit growth in comparison with the prior-year period.

  

 

2


 

UBS Group

Management report

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes to our presentation currency

Effective from 1 October 2018, the presentation currency of UBS Group AG’s consolidated financial statements has changed from Swiss francs to US dollars. Comparative information in this report for periods prior to the fourth quarter of 2018 has been restated. Assets, liabilities and total equity were translated to US dollars at closing exchange rates prevailing on the respective balance sheet dates, and income and expenses were translated at the respective average rates prevailing for the relevant periods.

 

 

 

 

Terms used in this report, unless the context requires otherwise

“UBS,” “UBS Group,” “UBS Group AG consolidated,”                                  UBS Group AG and its consolidated subsidiaries
“Group,” “the Group,” “we,” “us” and “our”                                              

“UBS AG consolidated”                                                                                       UBS AG and its consolidated subsidiaries

“UBS Group AG” and “UBS Group AG standalone”                                       UBS Group AG on a standalone basis

“UBS AG” and “UBS AG standalone”                                                               UBS AG on a standalone basis

“UBS Switzerland AG” and “UBS Switzerland AG standalone”                     UBS Switzerland AG on a standalone basis

“UBS Europe SE consolidated”                                                                            UBS Europe SE and its consolidated subsidiaries

“UBS Americas Holding LLC” and                                                                       UBS Americas Holding LLC and its
“UBS Americas Holding LLC consolidated”                                                       consolidated subsidiaries  

  

 


Recent developments

Recent developments

Regulatory and legal developments

Swiss Corporate Tax Reform

In May 2019, the Swiss electorate approved corporate tax reform measures that abolish preferential corporate tax regimes and introduce a series of tax measures aligned with Organisation for Economic Co-operation and Development (OECD) standards, while seeking to maintain Switzerland’s competitiveness as a business location. The federal changes resulting from this tax reform are not expected to have a significant effect on the tax expenses for the Group, as increases resulting from the reform are expected to be largely offset by tax rate reductions and other changes currently under consideration at the cantonal level. The federal reform will become effective on 1 January 2020.

The reform measures also provide that for Swiss domiciled companies with shares listed on a stock exchange no more than 50% of dividends may be, and at least 50% of share repurchases for redemption must be, paid out of capital contribution reserves, with the remainder required to be paid from retained earnings.

As a result, at least 50% of all dividends paid after 1 January 2020, including dividends in respect of the financial year 2019, will be paid from retained earnings, and will be subject to a 35% Swiss withholding tax. As of 30 June 2019, UBS held USD 13 billion in approved capital contribution reserves for potential future distributions to shareholders, either in the form of dividends or share buybacks.

Separately, following a change in Swiss tax law as of 1 January 2019 that applies to holding companies of systemically relevant banks issuing loss-absorbing additional tier 1 or total loss-absorbing capacity (TLAC)-eligible senior unsecured debt instruments, UBS will no longer issue such instruments out of UBS Group Funding (Switzerland) AG and existing instruments will be migrated to UBS Group AG during the second half of 2019.

EU equivalence for Swiss trading venues

On 18 June 2019, the European Commission decided not to extend its equivalence decision for Swiss trading venues beyond the end of June 2019, citing a perceived lack of progress toward the conclusion of an institutional framework agreement between Switzerland and the EU as the reason for this decision. In reaction, the Swiss Federal Council activated a contingency measure to protect the Swiss stock exchange infrastructure, effective as of 1 July 2019. The Swiss measure introduced a recognition requirement for foreign trading venues that admit shares issued by Swiss incorporated companies to trading, with all EU trading venues having their recognition revoked due to the lack of reciprocity.


To comply with this measure, trading in Swiss shares on EU trading venues ceased on and was redirected from EU to Swiss trading venues as of 1 July 2019 as permitted under EU law in the absence of an EU trading venue.

We have prepared for this scenario and have, as of 1 July 2019, routed relevant trade flows in Swiss shares from EU to Swiss trading venues, with limited adjustment costs for UBS.

BCBS initial margin offset in the leverage ratio and new disclosure requirements

The Basel Committee on Banking Supervision (BCBS) agreed to align the leverage ratio measurement of client-cleared derivatives with the standardized approach to measuring counterparty credit risk exposures (SA-CCR). We expect these provisions will become effective as of 1 January 2022. This treatment permits both cash and non-cash forms of segregated initial margin, as well as cash and non-cash variation margin, received from a client to offset the replacement cost and potential future exposure for client-cleared derivatives only. This will help to mitigate any potential effect on the leverage ratio denominator from the finalization of the Basel III capital framework, which takes effect from 1 January 2022.

The BCBS also introduced a new disclosure standard, effective as of 1 January 2022, which sets out additional requirements for banks to disclose their leverage ratios based on quarter-end and daily average values of securities financing transactions.

Consultation regarding revision of the Swiss Banking Act

In March 2019, the Swiss Federal Council commenced a consultation process with regard to a partial revision of the Swiss Banking Act. The consultation process ended in June 2019.

Among the proposed measures to strengthen the depositor protection scheme is a requirement that banks deposit half of their contribution obligations for the deposit protection scheme in securities or cash with a custodian.

An adjustment to the Intermediated Securities Act would introduce a requirement that all custodians of intermediated securities separate their own portfolios from the portfolios of their clients.

We expect the final rules to enter into effect no earlier than 2021 and to result in moderate additional costs for all Switzerland-based Group entities in scope.

 

 

4


 

US Regulation Best Interest

The US Securities and Exchange Commission (SEC) has adopted rules and interpretations to enhance customer protection of retail investors. The effective date of these new provisions will be 30 June 2020. The new rules are intended to align the legal requirements and mandated disclosures for broker-dealers and investment advisers with reasonable investor expectations, while preserving access, in terms of choice and cost, to a variety of investment services and products.

Regulation Best Interest elevates the standard of care for broker-dealers from the current “suitability” requirement to a newly defined “best interest” standard, which applies to any securities transaction or investment strategy involving securities offered to a retail customer and makes clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer when making recommendations. The regulation also creates new disclosure requirements and additional compliance program requirements. Implementation of these changes will require operational and supervisory changes for UBS’s US broker-dealers.

SEC amendments to cross-border application of US security-based swap regulations / Capital, margin and segregation requirements for security-based swap dealers

The SEC recently proposed amendments to previously proposed measures on the cross-border application of US security-based swap regulations, as well as adopting capital, margin and segregation requirements for security-based swap dealers.

The amendments to the cross-border application of US security-based swap regulations would allow greater involvement by US-based personnel in transactions by non-US security-based swap dealers with non-US persons without requiring the non-US dealer to register with the SEC. The SEC also proposed interpretative guidance on its registration requirements, including the requirements for representations and legal opinions on access to books and records of a non-US dealer and requests for substituted compliance. We continue to expect that UBS AG will be required to register with the SEC as a security-based swap dealer, most likely not before 2021.

Developments related to the transition away from IBORs

Liquidity and activity in Alternative Reference Rates (ARR) continue to develop in markets globally, with work progressing to resolve the remaining issues associated with transitioning away from interbank offered rates (IBORs). Regulatory authorities continue to focus on transitioning to ARR by the end of 2021.


In May 2019, the International Accounting Standards Board (IASB) issued an exposure draft Interest Rate Benchmark Reform addressing hedge accounting issues that arise before the IBORs are replaced to provide some relief during this period of uncertainty, with work continuing on those issues that are expected to arise after replacement.

We have a substantial number of contracts linked to IBORs. The new risk-free ARRs do not currently provide a term structure, which will require a change in the contractual terms of products currently indexed on terms other than overnight. We have established a cross-divisional, cross-regional governance structure and change program to address the scale and complexity of the transition.

Strategic optimization initiatives

In June 2019, we announced a strategic wealth management partnership in Japan with Sumitomo Mitsui Trust Holdings, Inc. (SuMi Trust Holdings). Subject to receiving all necessary regulatory and other approvals, UBS and SuMi Trust Holdings plan to offer each other’s products and services to their respective current and future clients from the end of 2019 through the establishment of a marketing joint venture. Subject to the same approvals, an operational joint venture entity will be established in 2021, which will be 51% owned and controlled by UBS, requiring UBS to consolidate the new company for accounting and regulatory reporting. UBS and SuMi Trust Holdings will, through the overall joint venture arrangement, be able to offer a more extensive range of products and services than either partner is currently able to offer on its own.

Effective 1 April 2019, as part of UBS’s efforts to improve the resolvability of the Group, the portion of the Asset Management business in Switzerland conducted by UBS AG was transferred from UBS AG to its indirect subsidiary, UBS Asset Management Switzerland AG. With this transfer, we have completed the transfer of our Swiss Asset Management business and all Asset Management subsidiaries outside the US into a separate Asset Management sub-group structure.

We are continuing to execute on our strategic initiatives and are considering other strategic optimization opportunities that would leverage our technology capabilities, build on our strengths and focus resources on growth areas. These opportunities may include strategic partnerships, additional collaboration across business divisions, evolution of our business models and optimization of our legal entities.

 

  

5


Group performance

Group performance

Income statement

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended

 

% change from

 

Year-to-date

USD million

 

30.6.19

31.3.19

30.6.18

 

1Q19

2Q18

 

30.6.19

30.6.18

Net interest income

 

 1,026 

 1,123 

 1,205 

 

 (9) 

 (15) 

 

 2,149 

 2,639 

Other net income from financial instruments measured at fair value through profit or loss

 

 1,939 

 1,935 

 2,001 

 

 0 

 (3) 

 

 3,874 

 3,974 

Credit loss (expense) / recovery

 

 (12) 

 (20) 

 (29) 

 

 (40) 

 (57) 

 

 (33) 

 (55) 

Fee and commission income

 

 4,907 

 4,541 

 4,845 

 

 8 

 1 

 

 9,448 

 10,022 

Fee and commission expense

 

 (434) 

 (409) 

 (421) 

 

 6 

 3 

 

 (842) 

 (855) 

Net fee and commission income

 

 4,474 

 4,132 

 4,423 

 

 8 

 1 

 

 8,606 

 9,168 

Other income

 

 105 

 49 

 44 

 

 116 

 141 

 

 154 

 86 

Total operating income

 

 7,532 

 7,218 

 7,644 

 

 4 

 (1) 

 

 14,750 

 15,812 

Personnel expenses

 

 4,153 

 4,043 

 4,102 

 

 3 

 1 

 

 8,196 

 8,357 

General and administrative expenses

 

 1,175 

 1,187 

 1,533 

 

 (1) 

 (23) 

 

 2,362 

 3,042 

Depreciation and impairment of property, equipment and software

 

 427 

 427 

 287 

 

 0 

 49 

 

 854 

 575 

Amortization and impairment of intangible assets

 

 18 

 16 

 16 

 

 13 

 9 

 

 33 

 33 

Total operating expenses

 

 5,773 

 5,672 

 5,938 

 

 2 

 (3) 

 

 11,445 

 12,007 

Operating profit / (loss) before tax

 

 1,759 

 1,546 

 1,706 

 

 14 

 3 

 

 3,305 

 3,806 

Tax expense / (benefit)

 

 366 

 407 

 322 

 

 (10) 

 14 

 

 773 

 855 

Net profit / (loss)

 

 1,393 

 1,139 

 1,384 

 

 22 

 1 

 

 2,532 

 2,951 

Net profit / (loss) attributable to non-controlling interests

 

 1 

 (2) 

 1 

 

 

 (31) 

 

 (1) 

 3 

Net profit / (loss) attributable to shareholders

 

 1,392 

 1,141 

 1,382 

 

 22 

 1 

 

 2,533 

 2,948 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

 2,473 

 1,039 

 359 

 

 138 

 589 

 

 3,512 

 2,213 

Total comprehensive income attributable to non-controlling interests

 

 (5) 

 2 

 (3) 

 

 

 51 

 

 (3) 

 0 

Total comprehensive income attributable to shareholders

 

 2,478 

 1,037 

 362 

 

 139 

 584 

 

 3,515 

 2,213 

 

6


 

Performance of our business divisions and Corporate Center – reported and adjusted1,2

 

 

For the quarter ended 30.6.19

USD million

 

Global Wealth Management

Personal &

Corporate

Banking

Asset

Manage-

ment

Investment Bank

Corporate Center3

UBS

Operating income as reported

 

 4,057 

 958 

 475 

 2,071 

 (30) 

 7,532 

of which: net foreign currency translations gains4

 

 

 

 

 

 10 

 10 

Operating income (adjusted)

 

 4,057 

 958 

 475 

 2,071 

 (40) 

 7,522 

 

 

 

 

 

 

 

 

Operating expenses as reported

 

 3,183 

 568 

 351 

 1,644 

 26 

 5,773 

of which: personnel-related restructuring expenses5

 

 0 

 0 

 3 

 1 

 22 

 25 

of which: non-personnel-related restructuring expenses5

 

 0 

 0 

 2 

 2 

 10 

 13 

of which: restructuring expenses allocated from Corporate Center5

 

 12 

 2 

 5 

 10 

 (30) 

 0 

Operating expenses (adjusted)

 

 3,171 

 566 

 340 

 1,631 

 25 

 5,735 

of which: net expenses for litigation, regulatory and similar matters6

 

 19 

 0 

 0 

 (1) 

 (14) 

 4 

 

 

 

 

 

 

 

 

Operating profit / (loss) before tax as reported

 

 874 

 390 

 124 

 427 

 (56) 

 1,759 

Operating profit / (loss) before tax (adjusted)

 

 886 

 392 

 135 

 440 

 (65) 

 1,787 

 

 

 

 

 

 

 

 

 

 

For the quarter ended 31.3.19

USD million

 

Global Wealth Management

Personal &

Corporate

Banking

Asset

Manage-

ment

Investment Bank

Corporate Center3

UBS

Operating income as reported

 

 4,003 

 957 

 446 

 1,765 

 47 

 7,218 

Operating income (adjusted)

 

 4,003 

 957 

 446 

 1,765 

 47 

 7,218 

 

 

 

 

 

 

 

 

Operating expenses as reported

 

 3,140 

 570 

 343 

 1,558 

 62 

 5,672 

of which: personnel-related restructuring expenses5

 

 0 

 0 

 2 

 1 

 14 

 17 

of which: non-personnel-related restructuring expenses5

 

 0 

 0 

 2 

 2 

 10 

 14 

of which: restructuring expenses allocated from Corporate Center5

 

 10 

 4 

 2 

 11 

 (27) 

 0 

Operating expenses (adjusted)

 

 3,130 

 567 

 337 

 1,544 

 63 

 5,641 

of which: net expenses for litigation, regulatory and similar matters6

 

 0 

 0 

 0 

 (1) 

 (8) 

 (8) 

 

 

 

 

 

 

 

 

Operating profit / (loss) before tax as reported

 

 863 

 387 

 103 

 207 

 (15) 

 1,546 

Operating profit / (loss) before tax (adjusted)

 

 873 

 391 

 109 

 221 

 (17) 

 1,577 

 

7


Group performance

Performance of our business divisions and Corporate Center – reported and adjusted (continued)1,2

 

 

For the quarter ended 30.6.18

USD million

 

Global Wealth Management

Personal &

Corporate

Banking

Asset

Manage-

ment

Investment Bank

Corporate Center3

UBS

Operating income as reported

 

 4,164 

 930 

 461 

 2,162 

 (73) 

 7,644 

Operating income (adjusted)

 

 4,164 

 930 

 461 

 2,162 

 (73) 

 7,644 

 

 

 

 

 

 

 

 

Operating expenses as reported

 

 3,202 

 584 

 365 

 1,627 

 160 

 5,938 

of which: personnel-related restructuring expenses5

 

 3 

 1 

 15 

 2 

 43 

 64 

of which: non-personnel-related restructuring expenses5

 

 5 

 0 

 3 

 3 

 40 

 51 

of which: restructuring expenses allocated from Corporate Center5

 

 39 

 9 

 8 

 32 

 (88) 

 0 

Operating expenses (adjusted)

 

 3,155 

 574 

 339 

 1,591 

 165 

 5,823 

of which: net expenses for litigation, regulatory and similar matters6

 

 53 

 0 

 0 

 2 

 78 

 132 

 

 

 

 

 

 

 

 

Operating profit / (loss) before tax as reported

 

 961 

 347 

 97 

 535 

 (233) 

 1,706 

Operating profit / (loss) before tax (adjusted)

 

 1,009 

 357 

 122 

 571 

 (238) 

 1,821 

1 Adjusted results are non-GAAP financial measures as defined by SEC regulations.    2 Comparative figures in this table have been restated for the changes in Corporate Center cost and resource allocation to the business divisions and the changes in the equity attribution framework. Refer to “Note 2 Segment reporting” in the “Consolidated financial statements” section of this report for more information. Comparatives may additionally differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period.    3 Corporate Center operating expenses presented in this table are after service allocations to business divisions.    4 Related to the disposal of foreign branches and subsidiaries.    5 Reflects restructuring expenses related to legacy cost programs as well as expenses for new restructuring initiatives.    6 Reflects the net increase in / (release of) provisions for litigation, regulatory and similar matters recognized in the income statement. Refer to ”Note 16 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report for more information. Also includes recoveries from third parties (second quarter of 2019: USD 1 million; first quarter of 2019: USD 7 million; second quarter of 2018: USD 10 million).  

 

8


 

Performance of our business divisions and Corporate Center – reported and adjusted1,2

 

 

Year-to-date 30.6.19

USD million

 

Global Wealth Management

Personal &

Corporate

Banking

Asset

Manage-

ment

Investment Bank

Corporate Center3

UBS

Operating income as reported

 

 8,061 

 1,915 

 921 

 3,836 

 17 

 14,750 

of which: net foreign currency translations gains4

 

 

 

 

 

 10 

 10 

Operating income (adjusted)

 

 8,061 

 1,915 

 921 

 3,836 

 6 

 14,740 

 

 

 

 

 

 

 

 

Operating expenses as reported

 

 6,323 

 1,139 

 693 

 3,202 

 88 

 11,445 

of which: personnel-related restructuring expenses5

 

 0 

 0 

 5 

 2 

 36 

 43 

of which: non-personnel-related restructuring expenses5

 

 0 

 0 

 4 

 3 

 20 

 27 

of which: restructuring expenses allocated from Corporate Center5

 

 22 

 6 

 7 

 21 

 (57) 

 0 

Operating expenses (adjusted)

 

 6,301 

 1,133 

 677 

 3,175 

 89 

 11,375 

of which: net expenses for litigation, regulatory and similar matters6

 

 20 

 0 

 0 

 (2) 

 (22) 

 (4) 

 

 

 

 

 

 

 

 

Operating profit / (loss) before tax as reported

 

 1,737 

 777 

 228 

 634 

 (71) 

 3,305 

Operating profit / (loss) before tax (adjusted)

 

 1,759 

 783 

 244 

 661 

 (82) 

 3,364 

 

 

 

 

 

 

 

 

 

 

Year-to-date 30.6.18

USD million

 

Global Wealth Management

Personal &

Corporate

Banking

Asset

Manage-

ment

Investment Bank

Corporate Center3

UBS

Operating income as reported

 

 8,572 

 1,911 

 927 

 4,577 

 (174) 

 15,812 

Operating income (adjusted)

 

 8,572 

 1,911 

 927 

 4,577 

 (174) 

 15,812 

 

 

 

 

 

 

 

 

Operating expenses as reported

 

 6,509 

 1,156 

 725 

 3,465 

 151 

 12,007 

of which: personnel-related restructuring expenses5

 

 6 

 2 

 16 

 14 

 93 

 131 

of which: non-personnel-related restructuring expenses5

 

 15 

 0 

 6 

 5 

 93 

 119 

of which: restructuring expenses allocated from Corporate Center5

 

 89 

 18 

 15 

 66 

 (187) 

 0 

of which: gain related to changes to the Swiss pension plan7

 

 (66) 

 (38) 

 (10) 

 (5) 

 (122) 

 (241) 

Operating expenses (adjusted)

 

 6,465 

 1,174 

 698 

 3,387 

 274 

 11,997 

of which: net expenses for litigation, regulatory and similar matters6

 

 85 

 0 

 0 

 0 

 36 

 121 

 

 

 

 

 

 

 

 

Operating profit / (loss) before tax as reported

 

 2,064 

 754 

 202 

 1,111 

 (325) 

 3,806 

Operating profit / (loss) before tax (adjusted)

 

 2,108 

 737 

 229 

 1,190 

 (448) 

 3,815 

1 Adjusted results are non-GAAP financial measures as defined by SEC regulations.    2 Comparative figures in this table have been restated for the changes in Corporate Center cost and resource allocation to the business divisions and the changes in the equity attribution framework. Refer to “Note 2 Segment reporting” in the “Consolidated financial statements” section of this report for more information. Comparatives may additionally differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after the reporting period.    3 Corporate Center operating expenses presented in this table are after service allocations to business divisions.    4 Related to the disposal of foreign branches and subsidiaries.    5 Reflects restructuring expenses related to legacy cost programs as well as expenses for new restructuring initiatives.    6 Reflects the net increase in / (release of) provisions for litigation, regulatory and similar matters recognized in the income statement. Refer to ”Note 16 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report for more information. Also includes recoveries from third parties of USD 8 million and USD 28 million for the first six months of 2019 and 2018, respectively.    7 Changes to the Pension Fund of UBS in Switzerland in the first quarter of 2018 resulted in a reduction in the pension obligation recognized by UBS. As a consequence, a pre-tax gain of USD 241 million was recognized in the income statement in the first quarter of 2018, with no overall effect on total equity. Refer to “Note 29 Pension and other post-employment benefit plans” in the “Consolidated financial statements” section of our Annual Report 2018 for more information.

 

9


Group performance

Results: 2Q19 vs 2Q18

Profit before tax increased by USD 53 million, or 3%, to USD 1,759 million, reflecting a decrease in operating expenses, partly offset by lower operating income. Operating income decreased by USD 112 million, or 1%, to USD 7,532 million, mainly reflecting USD 241 million lower net interest income and other net income from financial instruments measured at fair value through profit or loss, partly offset by a USD 61 million increase in other income and a USD 51 million increase in net fee and commission income. Operating expenses decreased by USD 165 million, or 3%, to USD 5,773 million, primarily due to a USD 358 million decrease in general and administrative expenses, partly offset by a USD 142 million increase in depreciation, amortization and impairment of property, equipment and software, as well as a USD 51 million increase in personnel expenses.

In addition to reporting our results in accordance with International Financial Reporting Standards (IFRS), we report adjusted results that exclude items that management believes are not representative of the underlying performance of our businesses. Such adjusted results are non-GAAP financial measures as defined by US Securities and Exchange Commission (SEC) regulations. These adjustments include restructuring expenses related to our CHF 2.1 billion cost reduction program
completed at the end of 2017 (referred to as our “legacy cost programs” in this report) as well as expenses relating to new restructuring initiatives. For the full year 2019, we expect restructuring expenses associated with our legacy cost programs to be approximately USD 0.2 billion.

For the purpose of determining adjusted results for the second quarter of 2019, we excluded net foreign currency translation gains of USD 10 million and net restructuring expenses of USD 39 million. For the second quarter of 2018, we excluded net restructuring expenses of USD 115 million.

On this adjusted basis, profit before tax for the second quarter of 2019 decreased by USD 34 million, or 2%, to USD 1,787 million, driven by a USD 122 million, or 2%, decrease in operating income, partly offset by a USD 88 million, or 2%, decrease in operating expenses.

Operating income: 2Q19 vs 2Q18

Total operating income decreased by USD 112 million, or 1%, to USD 7,532 million, mainly reflecting USD 241 million lower net interest income and other net income from financial instruments measured at fair value through profit or loss, partly offset by a USD 61 million increase in other income and a USD 51 million increase in net fee and commission income.

 

10


 

Net interest income and other net income from financial instruments measured at fair value through profit or loss

 

 

For the quarter ended

 

% change from

 

Year-to-date

USD million

 

30.6.19

31.3.19

30.6.18

 

1Q19

2Q18

 

30.6.19

30.6.18

Net interest income from financial instruments measured at amortized cost and fair value through other comprehensive income

 

 794 

 785 

 920 

 

 1 

 (14) 

 

 1,579 

 1,917 

Net interest income from financial instruments measured at fair value through profit or loss1

 

 232 

 339 

 285 

 

 (32) 

 (19) 

 

 571 

 722 

Other net income from financial instruments measured at fair value through profit or loss1

 

 1,939 

 1,935 

 2,001 

 

 0 

 (3) 

 

 3,874 

 3,974 

Total

 

 2,965 

 3,058 

 3,206 

 

 (3) 

 (7) 

 

 6,023 

 6,613 

Global Wealth Management2

 

 1,206 

 1,261 

 1,279 

 

 (4) 

 (6) 

 

 2,467 

 2,596 

of which: net interest income

 

 966 

 1,009 

 1,041 

 

 (4) 

 (7) 

 

 1,975 

 2,062 

of which: transaction-based income from foreign exchange and other intermediary activity3

 

 240 

 252 

 238 

 

 (5) 

 1 

 

 492 

 534 

Personal & Corporate Banking2

 

 610 

 609 

 599 

 

 0 

 2 

 

 1,219 

 1,222 

of which: net interest income

 

 501 

 493 

 501 

 

 1 

 0 

 

 994 

 1,017 

of which: transaction-based income from foreign exchange and other intermediary activity3

 

 110 

 116 

 98 

 

 (5) 

 12 

 

 225 

 205 

Asset Management2

 

 1 

 1 

 (5) 

 

 61 

 

 

 2 

 (12) 

Investment Bank2,4

 

 1,185 

 1,094 

 1,359 

 

 8 

 (13) 

 

 2,278 

 2,880 

Corporate Client Solutions

 

 241 

 164 

 254 

 

 48 

 (5) 

 

 405 

 672 

Investor Client Services

 

 943 

 930 

 1,104 

 

 1 

 (15) 

 

 1,873 

 2,208 

Corporate Center2

 

 (37) 

 94 

 (26) 

 

 

 40 

 

 57 

 (73) 

1 Effective as of 1 January 2019, UBS refined the presentation of dividend income and expense by reclassifying dividends from Net interest income from financial instruments measured at fair value through profit or loss to Other net income from financial instruments measured at fair value through profit or loss. Prior-period information was restated accordingly and the total effect to the Group was as follows: USD 210 million of net dividend expense and USD 202 million of net dividend income were reclassified for the quarter ended 30 June 2018 and the first six months of 2018, respectively. Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information.    2 Comparative figures have been restated for changes in Corporate Center cost allocations to the business divisions. Refer to “Note 2 Segment reporting” in the “Consolidated financial statements” section of this report for more information.    3 Mainly includes spread-related income in connection with client-driven transactions, foreign currency translation effects and income and expenses from precious metals, which are included in the income statement line Other net income from financial instruments measured at fair value through profit or loss. The amounts reported on this line are one component of Transaction-based income in the management discussion and analysis of Global Wealth Management and Personal & Corporate Banking in the “Global Wealth Management” and “Personal & Corporate Banking” sections of this report.    4 Investment Bank information is provided at the business line level rather than by financial statement reporting line in order to reflect the underlying business activities, which is consistent with the structure of the management discussion and analysis in the “Investment Bank” section of this report.

 

 

Net interest income and other net income from financial instruments measured at fair value through profit or loss

Total combined net interest income and other net income from financial instruments measured at fair value through profit or loss decreased by USD 241 million to USD 2,965 million. This was mainly driven by our Foreign Exchange, Rates and Credit business in the Investment Bank and in Global Wealth Management.

Global Wealth Management

In Global Wealth Management, net interest income decreased by USD 75 million to USD 966 million, mainly reflecting lower deposit and loan margins, partly offset by higher investment of equity income.

Transaction-based income from foreign exchange and other intermediary activity was broadly stable at USD 240 million.


Personal & Corporate Banking

In Personal & Corporate Banking, net interest income remained stable at USD 501 million as a result of higher deposit and loan revenues, largely offset by higher funding costs for total loss-absorbing capacity.

Transaction-based income from foreign exchange and other intermediary activity increased by USD 12 million to USD 110 million, mainly driven by foreign exchange transactions.

Investment Bank

In the Investment Bank, net interest income and other net income from financial instruments measured at fair value through profit or loss decreased by USD 174 million to USD 1,185 million. This was mainly driven by a USD 109 million decrease in Foreign Exchange, Rates and Credit, primarily as the second quarter of 2018 included net income of around USD 100 million, consisting mainly of previously deferred day-1 profits that were subsequently recognized due to enhanced observability and revised valuations in the funding curve used to value UBS interest rate-linked notes. In addition, a decrease of USD 52 million in Equities reflected lower client balances and reduced client activity levels.

 

11


Group performance

Corporate Center

In Corporate Center, net interest income and other net income from fair value changes on financial instruments decreased by USD 11 million to negative USD 37 million, reflecting a USD 86 million decrease in Non-core and Legacy Portfolio, mainly as the second quarter of 2018 included valuation gains of USD 89 million on financial assets measured at fair value through profit and loss, as well as a USD 61 million decrease in other Corporate Center income, reflecting higher funding costs relating to Corporate Center balance sheet assets and USD 31 million of additional interest expense related to lease liabilities recognized as a result of the adoption of IFRS 16, Leases, effective from 1 January 2019. These effects were largely offset by an increase in net treasury income of USD 137 million, mainly reflecting income from hedge accounting ineffectiveness, revenues from accounting asymmetries, as well as higher net interest income.

®   Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information on the adoption of IFRS 16

®   Refer to “Note 2 Segment reporting” in the “Consolidated financial statements” section of this report for more information on Corporate Center allocations

®   Refer to “Note 3 Net interest income” in the “Consolidated financial statements” section of this report for more information on net interest income

Net fee and commission income

Net fee and commission income was USD 4,474 million compared with USD 4,423 million.

M&A and corporate finance fees increased by USD 116 million to USD 296 million, primarily reflecting higher revenues from merger and acquisition transactions, despite a 26% decline in the global fee pool.


Underwriting fees increased by USD 39 million to USD 224 million, predominantly driven by higher equity underwriting revenues from public offerings despite a 5% decline in the global fee pool.

Net brokerage fees decreased by USD 73 million to USD 738 million, mainly in our Equities business in the Investment Bank, reflecting lower client activity levels.

Investment fund fees decreased by USD 30 million to USD 1,196 million, primarily in Global Wealth Management, reflecting margin compression, mainly driven by shifts into lower-margin mandate products, partly offset by an increase in overall mandate penetration.

®   Refer to “Note 4 Net fee and commission income” in the “Consolidated financial statements” section of this report for more information

Other income

Other income was USD 105 million compared with USD 44 million. The second quarter of 2019 included net foreign currency translation gains of USD 10 million related to the disposal of a branch. Excluding this item, adjusted other income increased by USD 51 million, mainly in Corporate Center, as the second quarter of 2019 included a gain of USD 38 million related to the settlement of a litigation claim and income of USD 14 million related to a claim on a defaulted counterparty position.

®   Refer to “Note 5 Other income” in the “Consolidated financial statements” section of this report for more information

 

 

Credit loss (expense) / recovery

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended

 

% change from

 

Year-to-date

USD million

 

30.6.19

31.3.19

30.6.18

 

1Q19

2Q18

 

30.6.19

30.6.18

Global Wealth Management

 

 (5) 

 1 

 (1) 

 

 

 465 

 

 (4) 

 3 

Personal & Corporate Banking

 

 (1) 

 2 

 (22) 

 

 

 (97) 

 

 1 

 (36) 

Investment Bank

 

 (1) 

 (22) 

 (6) 

 

 (94) 

 (74) 

 

 (24) 

 (21) 

Corporate Center

 

 (6) 

 0 

 0 

 

 

 

 

 (6) 

 0 

Total

 

 (12) 

 (20) 

 (29) 

 

 (40) 

 (57) 

 

 (33) 

 (55) 

 

Credit loss expense / recovery

Total net credit loss expenses were USD 12 million, mainly in Corporate Center – Non-core and Legacy Portfolio and Global Wealth Management, reflecting losses of USD 35 million from credit-impaired (stage 3) positions, partly offset by USD 23 million of releases in expected credit losses from stage 1 and 2 positions.

®   Refer to “Note 10 Expected credit loss measurement” in the “Consolidated financial statements” section of this report for more information on credit loss expense / recovery


12


 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended

 

% change from

 

Year-to-date

USD million

 

30.6.19

31.3.19

30.6.18

 

1Q19

2Q18

 

30.6.19

30.6.18

 

 

 

 

 

 

 

 

 

 

 

Operating expenses as reported

 

 

 

 

 

 

 

 

 

 

Personnel expenses

 

 4,153 

 4,043 

 4,102 

 

 3 

 1 

 

 8,196 

 8,357 

General and administrative expenses

 

 1,175 

 1,187 

 1,533 

 

 (1) 

 (23) 

 

 2,362 

 3,042 

Depreciation and impairment of property, equipment and software

 

 427 

 427 

 287 

 

 0 

 49 

 

 854 

 575 

Amortization and impairment of intangible assets

 

 18 

 16 

 16 

 

 13 

 9 

 

 33 

 33 

Total operating expenses as reported

 

 5,773 

 5,672 

 5,938 

 

 2 

 (3) 

 

 11,445 

 12,007 

 

 

 

 

 

 

 

 

 

 

 

Adjusting items

 

 

 

 

 

 

 

 

 

 

Personnel expenses

 

 25 

 17 

 64 

 

 

 

 

 43 

 (110) 

of which: restructuring expenses1

 

 25 

 17 

 64 

 

 

 

 

 43 

 131 

of which: gain related to changes to the Swiss pension plan2

 

 

 

 

 

 

 

 

 

 (241) 

General and administrative expenses1

 

 11 

 10 

 49 

 

 

 

 

 21 

 117 

Depreciation and impairment of property, equipment and software1

 

 2 

 4 

 2 

 

 

 

 

 6 

 2 

Total adjusting items

 

 39 

 31 

 115 

 

 

 

 

 70 

 9 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses (adjusted)3

 

 

 

 

 

 

 

 

 

 

Personnel expenses

 

 4,127 

 4,026 

 4,039 

 

 3 

 2 

 

 8,153 

 8,467 

of which: salaries and variable compensation

 

 2,506 

 2,410 

 2,401 

 

 4 

 4 

 

 4,916 

 5,088 

of which: financial advisor compensation4

 

 1,005 

 960 

 1,007 

 

 5 

 0 

 

 1,965 

 2,040 

of which: other personnel expenses5

 

 616 

 655 

 630 

 

 (6) 

 (2) 

 

 1,271 

 1,339 

General and administrative expenses

 

 1,164 

 1,177 

 1,483 

 

 (1) 

 (22) 

 

 2,341 

 2,925 

of which: net expenses for litigation, regulatory and similar matters

 

 4 

 (8) 

 132 

 

 

 (97) 

 

 (4) 

 121 

of which: other general and administrative expenses

 

 1,160 

 1,185 

 1,351 

 

 (2) 

 (14) 

 

 2,345 

 2,804 

Depreciation and impairment of property, equipment and software

 

 425 

 422 

 285 

 

 1 

 49 

 

 847 

 573 

Amortization and impairment of intangible assets

 

 18 

 16 

 16 

 

 13 

 9 

 

 33 

 33 

Total operating expenses (adjusted)

 

 5,735 

 5,641 

 5,823 

 

 2 

 (2) 

 

 11,375 

 11,997 

1 Reflects restructuring expenses related to legacy cost programs as well as expenses for new restructuring initiatives.    2 Changes to the Pension Fund of UBS in Switzerland in the first quarter of 2018 resulted in a reduction in the pension obligation recognized by UBS. As a consequence, a pre-tax gain of USD 241 million was recognized in the income statement in the first quarter of 2018, with no overall effect on total equity. Refer to “Note 29 Pension and other post-employment benefit plans” in the “Consolidated financial statements” section of our Annual Report 2018 for more information.    3 Adjusted results are non-GAAP financial measures as defined by SEC regulations.    4 Financial advisor compensation consists of formulaic compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated on the basis of financial advisor productivity, firm tenure, new assets and other variables. It also includes expenses related to compensation commitments with financial advisors entered into at the time of recruitment that are subject to vesting requirements.    5 Consists of expenses related to contractors, social security, pension and other post-employment benefit plans, and other personnel expenses. Refer to “Note 6 Personnel expenses” in the “Consolidated financial statements” section of this report for more information.

 

13


Group performance

Operating expenses: 2Q19 vs 2Q18

Total operating expenses decreased by USD 165 million, or 3%, to USD 5,773 million. Adjusted total operating expenses decreased by USD 88 million, or 2%, to USD 5,735 million. These exclude net restructuring expenses related to legacy cost programs and new restructuring initiatives of USD 39 million, compared with USD 115 million in the prior year.

Personnel expenses

Personnel expenses increased by USD 51 million to USD 4,153 million on a reported basis, and by USD 88 million to USD 4,127 million on an adjusted basis, primarily reflecting higher salary expenses, mainly in Corporate Center, driven by insourcing of certain activities and staff from third-party vendors to our Business Solutions Centers over the last 12 months, with an offsetting effect in general and administrative expenses.

®   Refer to “Note 6 Personnel expenses” in the “Consolidated financial statements” section of this report for more information

General and administrative expenses

General and administrative expenses decreased by USD 358 million to USD 1,175 million, mainly driven by lower rent expenses, expenses related to litigation, regulatory and similar matters, outsourcing costs and professional fees. A USD 137 million decrease in rent expenses was a direct result of the adoption of IFRS 16, Leases, in the first quarter of 2019 This decrease was more than offset by an increase of USD 119 million in depreciation expense and an increase of USD 31 million in interest expense relating to lease liabilities, also as a result of the adoption of IFRS 16.

On an adjusted basis, general and administrative expenses decreased by USD 319 million to USD 1,164 million, largely due to the aforementioned decreases in expenses related to litigation, regulatory and similar matters, rent expenses, outsourcing costs and professional fees.

We believe that the industry continues to operate in an environment in which expenses associated with litigation, regulatory and similar matters will remain elevated for the foreseeable future and we continue to be exposed to a number of significant claims and regulatory matters. The outcome of many of these matters, the timing of a resolution, and the potential effects of resolutions on our future business, financial results or financial condition are extremely difficult to predict.

®   Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information on the adoption of IFRS 16

®   Refer to “Note 7 General and administrative expenses” in the “Consolidated financial statements” section of this report for more information

®   Refer to “Note 16 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this report and to the “Regulatory and legal developments” and “Risk factors” sections of our Annual Report 2018 for more information on litigation, regulatory and similar matters


Depreciation, amortization and impairment

Depreciation, amortization and impairment of property, equipment and software increased by USD 142 million to USD 445 million on a reported basis, and by USD 142 million to USD 443 million on an adjusted basis, mainly resulting from USD 119 million higher depreciation expenses following the adoption of IFRS 16 in the first quarter of 2019.

®   Refer to “Note 1 Basis of accounting” in the “Consolidated financial statements” section of this report for more information on the adoption of IFRS 16

Tax: 2Q19 vs 2Q18

We recognized income tax expenses of USD 366 million for the second quarter of 2019, compared with USD 322 million for the second quarter of 2018.

Current tax expenses were USD 209 million, compared with USD 198 million, and related to taxable profits of UBS Switzerland AG and other entities.

Deferred tax expenses were USD 157 million, compared with USD 124 million. Deferred tax expenses in the second quarter of 2019 included expenses of USD 222 million, which reflect the amortization of deferred tax assets (DTAs) previously recognized in relation to tax losses carried forward and deductible temporary differences to reflect their offset against profits for the quarter, including the amortization of US tax loss DTAs at the level of UBS Americas Inc. Deferred tax expenses were decreased by a benefit of USD 130 million in respect of additional DTA recognition that resulted from the contribution of real estate assets by UBS AG to UBS Americas Inc. during the second quarter of 2019. The additional DTA recognition related to the elections that were made in the fourth quarter of 2018 to capitalize certain historic real estate costs. This amount represents one half of the expected full year benefit and, therefore, further amounts totaling USD 65 million will be recognized in each of the third and fourth quarters in accordance with the requirements of IAS 34, Interim Financial Reporting

As a result of the above-mentioned item, we expect a tax rate for the second half of 2019 that is lower than the 23.4% tax rate for the first half of this year, subject to any potential DTA-related adjustments made as part of our annual business planning process. From 2020 onwards, we expect a tax rate, excluding any potential effects from reassessment of deferred tax assets, of around 25%.

®   Refer to “Note 8 Income taxes” in the “Consolidated financial statements” section of this report for more information

 

14


 

Total comprehensive income attributable to shareholders: 2Q19 vs 2Q18

Total comprehensive income attributable to shareholders was USD 2,478 million compared with USD 362 million. Net profit attributable to shareholders was USD 1,392 million compared with USD 1,382 million and other comprehensive income (OCI) attributable to shareholders, net of tax, was positive USD 1,086 million compared with negative USD 1,020 million.

In the second quarter of 2019, OCI related to cash flow hedges was positive USD 773 million, mainly reflecting an increase in unrealized gains on US dollar hedging derivatives resulting from decreases in the relevant US dollar long-term interest rates. In the second quarter of 2018, OCI related to cash flow hedges was negative USD 160 million.

Foreign currency translation OCI was positive USD 168 million in the second quarter of 2019, mainly resulting from the strengthening of the Swiss franc and the euro against the US dollar. OCI related to foreign currency translation in the same quarter of last year was negative USD 1,343 million.

OCI related to own credit on financial liabilities designated at fair value was positive USD 72 million compared with positive USD 250 million and mainly reflected a widening of credit spreads.

OCI associated with financial assets measured at fair value through OCI was positive USD 65 million compared with negative USD 14 million and largely reflected net unrealized gains following decreases in the relevant US dollar long-term interest rates in the second quarter of 2019.

Defined benefit plan OCI was positive USD 8 million compared with positive USD 247 million. We recorded net pre-tax OCI gains of USD 25 million related to our non-Swiss pension plans, mainly driven by the UK defined benefit plans, which recorded OCI gains of USD 49 million. This reflected OCI gains of USD 112 million due to a positive return on plan assets, partly offset by OCI losses of USD 63 million from the remeasurement of the defined benefit obligation. Net pre-tax OCI losses related to the Swiss pension plans were USD 10 million.

®   Refer to “Statement of comprehensive income” in the “Consolidated financial statements” section of this report for more information

®   Refer to “Note 29 Pension and other post-employment benefit plans” in the “Consolidated financial statements” section of our Annual Report 2018 for more information on other comprehensive income related to defined benefit plans


Sensitivity to interest rate movements

As of 30 June 2019, we estimate that a parallel shift in yield curves by +100 basis points could lead to a combined increase in annual net interest income of approximately USD 0.5 billion in Global Wealth Management and Personal & Corporate Banking. US dollar and euro interest rates each contribute approximately USD 0.2 billion to this increase.

These estimates are based on a hypothetical scenario of an immediate increase in interest rates, equal across all currencies and relative to implied forward rates applied to our banking book. These estimates further assume no change to balance sheet size and structure, constant foreign exchange rates and no specific management action.

®   Refer  to the “Risk management and control section” of this report for information on interest rate risk in the banking book under new Pillar 3 requirements

Key figures and personnel

Return on common equity tier 1 (CET1) capital: 2Q19 vs 2Q18

The annualized return on CET1 capital (RoCET1) was 16.0% compared with 16.1%, mainly driven by a USD 0.4 billion increase in the average CET1 capital.

Adjusted cost / income ratio: 2Q19 vs 2Q18

The adjusted cost / income ratio was 76.1% compared with 75.9%.

Risk-weighted assets: 2Q19 vs 1Q19

During the second quarter of 2019, risk-weighted assets (RWA) decreased by USD 5.4 billion to USD 262.1 billion, reflecting decreases from asset size and other movements of USD 3.5 billion, methodology and policy changes of USD 1.9 billion, and lower regulatory add-ons of USD 1.5 billion, partly offset by currency effects of USD 1.2 billion and increases from model updates of USD 0.3 billion.

®   Refer to the “Capital management” section of this report for more information

 

15


Group performance

Common equity tier 1 capital ratio: 2Q19 vs 1Q19

Our common equity tier 1 (CET1) capital ratio increased to 13.3% from 13.0%, reflecting a USD 0.3 billion increase in CET1 capital and the aforementioned USD 5.4 billion decrease in RWA.

®   Refer to the “Capital management” section of this report for more information

Leverage ratio denominator: 2Q19 vs 1Q19

The leverage ratio denominator (LRD) remained stable at USD 911 billion in the second quarter of 2019.

®   Refer to the “Capital management” section of this report for more information

Common equity tier 1 leverage ratio: 2Q19 vs 1Q19

Our CET1 leverage ratio increased to 3.83% from 3.80%, reflecting the aforementioned increase in CET1 capital.

®   Refer to the “Capital management” section of this report for more information


Going concern leverage ratio: 2Q19 vs 1Q19

Our going concern leverage ratio increased from 5.4% to 5.5%, reflecting a USD 0.6 billion increase in going concern capital.

®   Refer to the “Capital management” section of this report for more information

Personnel: 2Q19 vs 1Q19

We employed 66,922 personnel (full-time equivalents) as of 30 June 2019, a net decrease of 559 compared with 31 March 2019. This mainly reflects the effect of our cost management initiatives, which was only partly offset by the effect of our insourcing initiatives. External staff in Corporate Center decreased by 890 over the same period.

 

 

Return on equity

 

 

 

 

 

 

 

 

 

As of or for the quarter ended

 

Year-to-date

USD million, except where indicated

 

30.6.19

31.3.19

30.6.18

 

30.6.19

30.6.18

 

 

 

 

 

 

 

 

Net profit

 

 

 

 

 

 

 

Net profit / (loss) attributable to shareholders

 

 1,392 

 1,141 

 1,382 

 

 2,533 

 2,948 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

Equity attributable to shareholders

 

 53,180 

 53,667 

 51,210 

 

 53,180 

 51,210 

Less: goodwill and intangible assets

 

 6,624 

 6,621 

 6,448 

 

 6,624 

 6,448 

Tangible equity attributable to shareholders

 

 46,555 

 47,046 

 44,762 

 

 46,555 

 44,762 

Less: other CET1 deductions

 

 11,607 

 12,388 

 10,646 

 

 11,607 

 10,646 

Common equity tier 1 capital

 

 34,948 

 34,658 

 34,116 

 

 34,948 

 34,116 

 

 

 

 

 

 

 

 

Return on equity

 

 

 

 

 

 

 

Return on equity (%)1

 

 10.4 

 8.6 

 10.5 

 

 9.5 

 11.2 

Return on tangible equity (%)2

 

 11.9 

 9.8 

 12.0 

 

 10.8 

 12.8 

Return on common equity tier 1 capital (%)3

 

 16.0 

 13.3 

 16.1 

 

 14.6 

 17.2 

1 Calculated as net profit attributable to shareholders (annualized as applicable) / average equity attributable to shareholders.    2 Calculated as net profit attributable to shareholders (annualized as applicable) / average equity attributable to shareholders less average goodwill and intangible assets. Effective 1 January 2019, the definition of the numerator for return on tangible equity has been revised to align with numerators for return on equity and return on CET1 capital; i.e., we no longer adjust for amortization and impairment of goodwill and intangible assets. Prior periods have been restated.    3 Calculated as net profit attributable to shareholders (annualized as applicable) / average common equity tier 1 capital.

 

16


 

Net new money and invested assets

Management’s discussion and analysis of net new money and invested assets is provided in the “UBS business divisions and Corporate Center” section of this report.

 

Net new money1

 

 

 

 

 

 

 

 

 

For the quarter ended

 

Year-to-date

USD billion

 

30.6.19

31.3.19

30.6.18

 

30.6.19

30.6.18

Global Wealth Management

 

 (1.7) 

 22.3 

 (1.2) 

 

 20.6 

 18.8 

Asset Management2

 

 (15.0) 

 0.1 

 (2.1) 

 

 (14.9) 

 31.2 

of which: excluding money market flows

 

 (13.9) 

 (2.3) 

 1.2 

 

 (16.1) 

 29.0 

of which: money market flows

 

 (1.1) 

 2.3 

 (3.3) 

 

 1.3 

 2.1 

1 Net new money excludes interest and dividend income.    2 Effective 1 January 2019, certain assets have been reclassified between asset classes to better reflect their underlying nature, with prior-period information restated. The adjustments have no effect on total net new money.

 

Invested assets

 

 

 

 

 

 

 

 

 

As of

 

% change from

USD billion

 

30.6.19

31.3.19

30.6.18

 

31.3.19

30.6.18

Global Wealth Management

 

 2,486 

 2,432 

 2,393 

 

 2 

 4 

Asset Management1

 

 831 

 824 

 817 

 

 1 

 2 

of which: excluding money market funds

 

 734 

 726 

 728 

 

 1 

 1 

of which: money market funds

 

 97 

 98 

 89 

 

 (1) 

 9 

1 Effective 1 January 2019, certain assets have been reclassified between asset classes to better reflect their underlying nature, with prior-period information restated. The adjustments have no effect on total invested assets.

 

 

Results: 6M19 vs 6M18

Profit before tax decreased by USD 501 million, or 13%, to USD 3,305 million.

Operating income decreased by USD 1,062 million, or 7%, mainly reflecting USD 590 million lower net interest income and other net income from fair value changes on financial instruments, primarily driven by decreases in the Investment Bank and in Global Wealth Management, partly offset by an increase in Corporate Center. In addition, net fee and commission income decreased by USD 562 million, mainly due to a USD 261 million decrease in net brokerage fees across both Global Wealth Management and the Investment Bank as well as USD 284 million lower investment fund fees and fees for portfolio management and related services, primarily in Global Wealth Management.

Operating expenses decreased by USD 562 million, or 5%, mainly reflecting USD 680 million lower general and administrative expenses. This was largely driven by decreases in outsourcing costs, expenses related to litigation, regulatory and similar matters, and professional fees. Additionally, following the adoption of IFRS 16, Leases, rent expenses decreased by USD 268 million, which was more than offset by a USD 279 million increase in expenses from depreciation, amortization and impairment of property, equipment and software. Personnel expenses decreased by USD 161 million, primarily due to lower variable compensation, financial advisor compensation and costs for contractors, partly offset by higher pension costs, as the first quarter of 2018 included a gain of USD 241 million related to changes to our Swiss pension plan.

On an adjusted basis, profit before tax decreased by USD 451 million, or 12%, reflecting lower operating income, partly offset by a decrease in operating expenses.


Adjusted operating income decreased by USD 1,072 million, or 7%, reflecting the aforementioned decreases in net interest income and other net income from fair value changes on financial instruments and net fee and commission income.

Adjusted operating expenses decreased by USD 622 million, or 5%, mainly reflecting a USD 314 million decrease in adjusted personnel expenses, mainly as a result of lower variable compensation, as well as the aforementioned decreases in  outsourcing costs, expenses for litigation, regulatory and similar matters and professional fees.

Outlook

The overall pace of global growth has stabilized at a lower level after a synchronized global slowdown in prior quarters. Downside risks remain due to political uncertainties and geopolitical tensions. Central banks are indicating a reversal of monetary policy normalization and embarking on new stimulus measures.

A sharp drop in interest rates and expected rate cuts will continue to adversely affect net interest income compared with last year. Our regional and business diversification, along with higher invested assets benefitting recurring revenues, will help to mitigate this. An improvement in investor sentiment and higher market volatility could help to offset the typical third quarter seasonality.

We are executing our strategy with discipline, focusing on balancing efficiency and investments for growth, to deliver on our capital return objectives and to create sustainable long-term value for our shareholders.

  

17


 

 


 

UBS business
divisions
and Corporate
Center

 Management report

  

 


Global Wealth Management

Global Wealth Management

Global Wealth Management1

 

 

 

 

 

 

 

 

 

 

As of or for the quarter ended

 

% change from

 

Year-to-date

USD million, except where indicated

 

30.6.19

31.3.19

30.6.18

 

1Q19

2Q18

 

30.6.19

30.6.18

 

 

 

 

 

 

 

 

 

 

 

Results

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 966 

 1,009 

 1,041 

 

 (4) 

 (7) 

 

 1,975 

 2,062 

Recurring net fee income2

 

 2,315 

 2,218 

 2,373 

 

 4 

 (2) 

 

 4,533 

 4,793 

Transaction-based income3

 

 764 

 765 

 741 

 

 0 

 3 

 

 1,529 

 1,694 

Other income

 

 17 

 11 

 9 

 

 50 

 85 

 

 28 

 20 

Income

 

 4,062 

 4,003 

 4,164 

 

 1 

 (2) 

 

 8,064 

 8,570 

Credit loss (expense) / recovery

 

 (5) 

 1 

 (1) 

 

 

 465 

 

 (4) 

 3 

Total operating income

 

 4,057 

 4,003 

 4,164 

 

 1 

 (3) 

 

 8,061 

 8,572 

Personnel expenses

 

 1,905 

 1,900 

 1,925 

 

 0 

 (1) 

 

 3,805 

 3,898 

Salaries and other personnel costs

 

 900 

 940 

 918 

 

 (4) 

 (2) 

 

 1,840 

 1,858 

Financial advisor variable compensation4,5

 

 879 

 816 

 862 

 

 8 

 2 

 

 1,694 

 1,739 

Compensation commitments with recruited financial advisors4,6

 

 127 

 144 

 146 

 

 (12) 

 (13) 

 

 271 

 300 

General and administrative expenses

 

 271 

 249 

 305 

 

 9 

 (11) 

 

 520 

 610 

Services (to) / from Corporate Center and other business divisions

 

 992 

 975 

 959 

 

 2 

 3 

 

 1,967 

 1,973 

of which: services from Corporate Center

 

 948 

 938 

 929 

 

 1 

 2 

 

 1,886 

 1,910 

Depreciation and impairment of property, equipment and software

 

 1 

 1 

 1 

 

 4 

 84 

 

 3 

 2 

Amortization and impairment of intangible assets

 

 14 

 14 

 13 

 

 6 

 10 

 

 28 

 26 

Total operating expenses

 

 3,183 

 3,140 

 3,202 

 

 1 

 (1) 

 

 6,323 

 6,509 

Business division operating profit / (loss) before tax

 

 874 

 863 

 961 

 

 1 

 (9) 

 

 1,737 

 2,064 

 

 

 

 

 

 

 

 

 

 

 

Adjusted results7

 

 

 

 

 

 

 

 

 

 

Total operating income as reported

 

 4,057 

 4,003 

 4,164 

 

 1 

 (3) 

 

 8,061 

 8,572 

Total operating income (adjusted)

 

 4,057 

 4,003 

 4,164 

 

 1 

 (3) 

 

 8,061 

 8,572 

Total operating expenses as reported

 

 3,183 

 3,140 

 3,202 

 

 1 

 (1) 

 

 6,323 

 6,509 

of which: personnel-related restructuring expenses8

 

 0 

 0 

 3 

 

 

 

 

 0 

 6 

of which: non-personnel-related restructuring expenses8

 

 0 

 0 

 5 

 

 

 

 

 0 

 15 

of which: restructuring expenses allocated from Corporate Center8

 

 12 

 10 

 39 

 

 

 

 

 22 

 89 

of which: gain related to changes to the Swiss pension plan

 

 

 

 

 

 

 

 

 

 (66) 

Total operating expenses (adjusted)

 

 3,171 

 3,130 

 3,155 

 

 1 

 1 

 

 6,301 

 6,465 

Business division operating profit / (loss) before tax as reported

 

 874 

 863 

 961 

 

 1 

 (9) 

 

 1,737 

 2,064 

Business division operating profit / (loss) before tax (adjusted)

 

 886 

 873 

 1,009 

 

 1 

 (12) 

 

 1,759 

 2,108 

 

 

 

 

 

 

 

 

 

 

 

Performance measures9

 

 

 

 

 

 

 

 

 

 

Pre-tax profit growth (%)

 

 (9.1) 

 (21.7) 

 15.8 

 

 

 

 

 (15.8) 

 23.6 

Cost / income ratio (%)

 

 78.4 

 78.4 

 76.9 

 

 

 

 

 78.4 

 75.9 

Net new money growth (%)

 

 (0.3) 

 3.9 

 (0.2) 

 

 

 

 

 1.8 

 1.6 

 

 

 

 

 

 

 

 

 

 

 

Adjusted performance measures7,9

 

 

 

 

 

 

 

 

 

 

Pre-tax profit growth (%)

 

 (12.2) 

 (20.5) 

 4.3 

 

 

 

 

 (16.5) 

 9.9 

Cost / income ratio (%)

 

 78.1 

 78.2 

 75.8 

 

 

 

 

 78.1 

 75.4 

 

20


 

Global Wealth Management (continued)¹

 

 

 

 

 

 

 

As of or for the quarter ended

 

% change from

 

Year-to-date

USD million, except where indicated

 

30.6.19

31.3.19

30.6.18

 

1Q19

2Q18

 

30.6.19

30.6.18

 

 

 

 

 

 

 

 

 

 

 

Additional information

 

 

 

 

 

 

 

 

 

 

Recurring income10

 

 3,280 

 3,227 

 3,414 

 

 2 

 (4) 

 

 6,507 

 6,855 

Recurring income as a percentage of income (%)

 

 80.8 

 80.6 

 82.0 

 

 

 

 

 80.7 

 80.0 

Average attributed equity (USD billion)11

 

 16.6 

 16.4 

 16.2 

 

 2 

 2 

 

 16.5 

 16.3 

Return on attributed equity (%)11

 

 21.0 

 21.1 

 23.7 

 

 

 

 

 21.0 

 25.4 

Risk-weighted assets (USD billion)11

 

 77.3 

 76.9 

 75.2 

 

 1 

 3 

 

 77.3 

 75.2 

Leverage ratio denominator (USD billion)11

 

 323.2 

 325.9 

 309.4 

 

 (1) 

 4 

 

 323.2 

 309.4 

Goodwill and intangible assets (USD billion)

 

 5.1 

 5.1 

 5.0 

 

 0 

 2 

 

 5.1 

 5.0 

Net new money (USD billion)

 

 (1.7) 

 22.3 

 (1.2) 

 

 

 

 

 20.6 

 18.8 

Invested assets (USD billion)

 

 2,486 

 2,432 

 2,393 

 

 2 

 4 

 

 2,486 

 2,393 

Net margin on invested assets (bps)12

 

 14 

 15 

 16 

 

 (3) 

 (11) 

 

 14 

 17 

Gross margin on invested assets (bps)

 

 66 

 68 

 69 

 

 (3) 

 (5) 

 

 67 

 71 

Client assets (USD billion)

 

 2,768 

 2,709 

 2,656 

 

 2 

 4 

 

 2,768 

 2,656 

Loans, gross (USD billion)13

 

 176.4 

 174.3 

 177.2 

 

 1 

 0 

 

 176.4 

 177.2 

Customer deposits (USD billion)13,14

 

 288.7 

 283.2 

 270.8 

 

 2 

 7 

 

 288.7 

 270.8 

Recruitment loans to financial advisors4

 

 2,195 

 2,264 

 2,405 

 

 (3) 

 (9) 

 

 2,195 

 2,405 

Other loans to financial advisors4

 

 880 

 894 

 1,019 

 

 (2) 

 (14) 

 

 880 

 1,019 

Personnel (full-time equivalents)

 

 22,925 

 23,443 

 23,458 

 

 (2) 

 (2) 

 

 22,925 

 23,458 

Advisors (full-time equivalents)

 

 10,403 

 10,573 

 10,682 

 

 (2) 

 (3) 

 

 10,403 

 10,682 

1 Prior-year comparative figures in this table have been restated for the changes in Corporate Center cost and resource allocation to the business divisions and the changes in the equity attribution framework effective 1 January 2019. Refer to “Note 2 Segment reporting” in the “Consolidated financial statements” section of this report for more information on the changes to the Corporate Center cost and resource allocation to business divisions and to the “Recent developments” section in our first quarter 2019 report for more information on the changes in the equity attribution framework. Comparatives may additionally differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and event