UBS AG (
Q3 2010 Earnings Call
October 26, 2010 03:00 am ET
Caroline Stewart - Head of IR
John Cryan - CFO
Jon Peace - Nomura
Kinner Lakhani - Citigroup
Fiona Swaffield - Execution
Kian Abouhossein - JPMorgan
Jacques-Henri Gaulard - Autonomous Research
Matthew Clark - KBW
Derek De Vries - Bank of America Merrill Lynch
Huw van Steenis - Morgan Stanley
Christopher Wheeler - Mediobanca
Jernej Omahen - Goldman Sachs
Beat Soltermann - Swiss Public Radio
Robert Murphy - HSBC
Previous Statements by UBS
» UBS AG. Q2 2010 Earnings Call Transcript
» UBS AG Q1 2010 Earnings Call Transcript
» UBS AG Q4 2009 Earnings Call Transcript
» UBS AG F2Q07 (Qtr End 9/30/07) Earnings Call Transcript
Good morning. I am Stephanie the Chorus Call operator for this conference. Welcome to the UBS Third Quarter 2010 Results Conference Call. Please note that for the duration of the presentation all participants will be in listen-only mode and the conference is being recorded. After the presentation there will an opportunity to ask questions. (Operator Instructions).
At this time I would like to turn the conference over to UBS.
Good morning, everyone, and welcome to our third quarter results presentation. My name is Caroline Stewart and I am the Head of Investor Relations at UBS. This morning, our Chief Financial Officer, John Cryan will take you through the results, and then we’ll be very happy to take your questions.
Before we get started, I’d like to highlight this slide, which contains our cautionary statement with regard to forward-looking statements, and I’d ask you to take some time to read it.
With that, I’d like to hand over to John.
Good morning, everyone and welcome to the webcast. It’s my pleasure to take you through the details of our results for the third quarter of 2010.
We made a bottom line net profit attributable to our shareholders of CHF1.7 billion or diluted earnings per share of CHF0.43, about half of this amount comprises the net tax credit, which I’ll cover in more detail later. All of our businesses report lower revenues quarter-on-quarter as a result of lower levels of client engagement. The results of most of our divisions were also heavily impacted by the 9% fall in the value of U.S. dollar against our reporting currency.
Our overall invested asset base held up despite the effects of heavy foreign currency depreciation. This is in large measure thanks to strong market performance. We further strengthened our capital base and reported Tier I ratio of 16.7% notwithstanding having called the $1.5 billion hybrid capital instrument.
Our core Tier I capital is CHF29.6 billion at the end of September, representing 14.2% of risk weighted assets, as calculated on the Basel II basis.
Our annualized return on equity year-to-date is been 17.6%, well within the range of the medium term target we set last year.
This waterfall chart shows the principle quarter-on-quarter changes in our net profit attributable to shareholders. The narrowing of our credit spreads over the quarter reversed some of the owned credit gains in Q2 with an aggregate delta of almost the CHF1 billion.
Our operating income, excluding owned credit and credit loss expenses, nevertheless fell quarter-on-quarter by over CHF1.6 billion. This was principally as a consequence of the unusually low level of client activity. To mitigate the impact of lower revenues, we cut our expense base.
We’ve recognized a net income tax benefit for the quarter of CHF825 million. The principle component of the tax line is a credit to income of CHF882 million from the re-measurement of the deferred tax assets recognized on our balance sheet in respect of tax losses incurred in previous years in United States of America.
This was partly offset by amortization of deferred tax assets held against prior period losses recognized in Switzerland, net of the recognition of the deferred tax revaluation benefit that I mentioned last quarter. The net amount of the two items relating to Swiss tax was a charge of CHF272 million.
We were also able to recognize an aggregate credit of CHF246 million as a consequence of agreeing previously opened prior year tax positions in a number of jurisdictions.
And finally, we incurred the smaller net charge of CHF31 million largely representing current tax payable, again, in a variety of locations.
The recognition of deferred tax assets through the P&L is governed by a standard that requires annual pro-rata temporis recognition. So, for example, the $900 million credit we took in Q3 in recognition of U.S. tax losses represents three quarters of the overall amount of $1.2 billion. The remaining $300 million will be recognized in Q4 together with the final installment of the other deferred tax re-measurements for the year. As a consequence, I now expect that the overall effective tax rate for the Group for 2010 will be close to zero.
I’ll take you through each of the divisional results in a moment. Overall, Wealth Management’s results were unsatisfactory. Retail and Corporate and Global Asset Management both reported relatively stable results. And Wealth Management Americas and the Investment Bank showed operating losses.
At Wealth Management Americas, we’ve completed our restructuring work and there are now signs that the division can return to sustainable profitability. The Investment Bank reported a loss mainly due to low client-driven revenues and the negative impact of own credit effects as our credit spreads tightened across the board.
The corporate center results reflect a gain of CHF293 million on the valuation of our option to acquire the equity of the SNB Stab-Fund.
This slide shows divisional pre-tax profit year-to-date compared to the same period last year. You’ll see that all the divisions have improved performance year-on-year, though restructuring work has weighed on Wealth Management Americas, which has not yet returned to profit. The standout improvement is clearly in the Investment Bank which has reported the year-on-year net increase in reported profit of almost CHF8.5 billion.
We brought expenses down by nearly 6% quarter-on-quarter on an adjusted basis. We cut personnel expenses by 10%, as we reduced our bonus accruals to reflect lower revenues. Non-personnel expenses increased by 4% on an underlying basis, largely reflecting increased litigation charges, the cost of re-launching the UBS brand and our sponsorship arrangement with Formula 1.
We expect to meet our target for 2010 of keeping our fixed cost base below CHF20 billion, but it’s fair to say that we experienced a helpful tailwind in Q3 from the heavy depreciation of the U.S. dollar and the British pound against the Swiss franc.
Moving on to the divisions, Wealth Management and Swiss bank’s revenues fell 6% on the second quarter result. The principle driver of the fall was the 19% decline in trading related income and brokerage fees, reflecting exceptionally low levels of client activity, particularly over the summer holiday season.