Q1 2010 Earnings Call
May 4, 2010 6:45 a.m. EST
John Cryan - Group CFO
Caroline Stewart - Head, IR
Kian Abouhossein - JPMorgan
Huw van Steenis - Morgan Stanley
Jon Peace - Nomura
Derek De Vries - Bank of America
Jernej Omahen - Goldman Sachs
Matthew Clark - KBW
Kinner Lakhani - Citi
Fiona Swaffield - Execution
Georg Kanders - WestLB
Previous Statements by UBS
» UBS AG Q4 2009 Earnings Call Transcript
» UBS AG F2Q07 (Qtr End 9/30/07) Earnings Call Transcript
» UBS Q2 2007 Earnings Call Transcript
Good morning and welcome to our first quarter results presentation. My name is Caroline Stewart and I’m the head of investor relations here at UBS. This morning John Cryan, our chief financial officer will present the first quarter results.
After the presentation we will be happy to take any of your questions. Before we get started today I’d like to draw your attention to this slide. It contains our cautionary statement with regard to forward-looking statements. I recommend that you take a few moments to read it in detail. With that, I’d like to hand over to John.
Good morning, everyone. It’s my pleasure to take you through the results for the first quarter of 2010. This morning we reported a pre-tax profit of CHF 2.8 billion for the first quarter, in line with the announcement we made just prior to our AGM last month.
The net profit attributable to shareholders was CHF 2.2 billion equivalent to diluted earnings per share of CHF 0.58 and representing an annualized 21% return on average equity. The improvement in our revenues on the fourth quarter was attributable mostly to a significantly better result in our fixed income current season commodities unit. This was achieved with no significant increase in risk taking. In fact, we continued to reduce our exposure to legacy risks during the quarter.
Risk-weighted assets at quarter end where only marginally higher than they had been at the start of the quarter and the average market value at risk was flat on recent quarters. We continue to build our financial strength, increasing our capital primarily through profit retention. Our tier 1 capital ratio at the end of the quarter was 16% and our core tier 1 ratio was 21.5%.
Making money remains a key focus of management. Although each of our asset gathering divisions will continue to outflows in the quarter, the level of outflows did fall substantially.
This chart shows the first quarter performance by division. I’ll go through detailed results for each division as usual but at this point let me make some general remarks on the overall results. Our revenues in the quarter totaled CHF 9.3 billion before own credit effects. This brings us close to our medium-term revenue target of over CHF 10 billion for the quarter. Revenues were positively impacted by the strong trading environment in the fixed income markets, especially in January.
Personnel expenses across the group do show an uptick on the level we reported in Q4. You may recall that for the 2009 performance year we increased the proportion of variable compensation awarded in the form of deferred share grants. This changes books in the fourth quarter with a cumulative adjustment for prior quarters and had the effect of deferring into future periods, a recognition of a greater proportion of the overall cost of variable compensation in our accounts.
The personnel expense charge in this quarter reflects a return to a more normal level of compensation accrual. However, variable compensation is determined annually, so you should bear in mind that the rate of bonus accrual could change through the remainder of the year.
The own credit charge for the quarter was just under CHF 250 million, so that at quarter end we held a net life-to-date gain from own credit of just over CHF 650 million. The tax charge of CHF 603 million represents an implied tax rate of 21.5% in line with what we currently expect our long-term normalized tax rate to be.
The vast majority of the charge, some CHF 565 million, was a deferred tax expense as Swiss tax losses, for which we previously recognized deferred tax assets, were applied against profits for the quarter. We also incurred tax expenses of CHF 125 million, mainly on profits in APAC. Finally we were able to re-measure our US deferred tax assets and increase them by CHF 87 million.
This slide shows the group net profit progression quarter-on-quarter. The improvement in the bottom line result was just short of CHF 1 billion but the top line improvement was nearer to CHF 3 billion. This was offset by an increase in personnel expense of CHF 1.2 billion and a net increase in tax expense of almost CHF 1.1 billion, given that we took a significant tax credit in Q4, after we re-measured our deferred tax assets at year end.
There was relatively little allocation of profit to minorities in Q1. The vast majority of our minorities are represented by the holders of our hybrid tier 1 capital. Net profit is attributed to minorities when events occur that trigger mandatory payments of dividends on our trust preferred securities. We expect dividend payments in an amount of up to CHF 300 million to be triggered in the second quarter.
On this slide we’ve sought to analyze the drivers of the revenue improvement in the first quarter by business division. The top graphic is a straight comparison with Q4s numbers. You’ll see that the main driver of the 48% increase in revenues is the improvement in fixed income. The bottom chart shows the same analysis but this time against the average quarterly performance for 2009 and the turnaround in FICC is again the principal driver, this time with a 59% improvement.
Total operating expenses grew by 20% quarter on quarter to CHF 6.2 billion. This chart shows Q1 verses the average of the quarters in 2009. The principal component of the increase in expenses was the accrual we made for variable compensation which includes amortization of the deferred compensation we awarded to staff for 2009 and earlier years.