UBS Group AG delivered a robust second quarter performance, reflecting the strength of its client franchises and disciplined implementation of integration plans following the Credit Suisse acquisition.
Top Takeaways
- UBS reported a net profit of $2.9 billion for the first half of 2024, with an underlying return on CET1 capital of 9.2%.
- The bank has captured nearly half of its targeted gross cost savings, reducing risk-weighted assets and making significant progress on integration milestones.
- Global Wealth Management (GWM) generated $27 billion in net new assets, demonstrating strong client trust despite integration challenges.
- The Investment Bank delivered strong second quarter results, with improving capital markets activity supporting an excellent banking quarter.
- UBS expects continued market volatility but remains focused on integration execution and strategic investments for long-term value creation.
Summary
UBS Group AG reported a strong second quarter performance, contributing to a solid first half of 2024. The bank’s underlying profit before tax reached $4.7 billion, with a CET1 capital ratio of 14.9%. CEO Sergio Ermotti emphasized the bank’s progress:
“We made significant progress, and UBS continues to deliver on all of its commitments to stakeholders. Putting the needs of clients first during a challenging market environment has allowed us to maintain solid momentum while we fulfill our objective of completing the integration by the end of 2026.”
Main Themes
- Guidance: UBS reaffirmed its 2024 capital return plans and mid- to long-term ambitions for dividends and buybacks.
- Integration Progress: The bank has captured nearly half of its targeted gross cost savings and completed critical milestones, including parent and Swiss bank mergers.
- Market Outlook: UBS expects heightened market volatility due to ongoing geopolitical tensions and anticipation of U.S. elections.
- Strategic Investments: The bank is reinforcing its capabilities and competitive position, particularly in the Investment Bank and Global Wealth Management.
- Economic Outlook: UBS is modeling 100 basis points of U.S. dollar policy rate reductions by the end of 2024.
Insights
UBS has made significant strides in integrating Credit Suisse, reducing execution risk and positioning itself to meet financial targets. The bank’s ability to retain the majority of Credit Suisse’s invested assets, despite advisor attrition, demonstrates the strength of its platform. UBS is also making progress in addressing Credit Suisse’s legacy legal issues, including the supply chain finance funds and Mozambique matters.
Market Opportunity
UBS is leveraging its enhanced scale and capabilities to expand its market opportunity. The newly created Unified Global Alternatives unit combines alternative investment capabilities across GWM and Asset Management, creating a top 5 global player with $250 billion in invested assets. This strategic move aims to provide clients with a more comprehensive offering and enhanced access to exclusive co-investment opportunities.
Market Commentary
In Switzerland, UBS continues to play a crucial role in the credit market, granting or renewing around CHF 85 billion of loans since the acquisition. However, higher interest rates, increased regulatory requirements, and the need to reprice some Credit Suisse loans are impacting credit pricing. The bank is engaging constructively with clients to address these changes.
Customer Behaviors
Global Wealth Management clients are showing increased interest in structured products, particularly in APAC and the Americas. This trend reflects clients seeking customized investment opportunities in an environment of low volatility, high interest rates, and continued global tech appeal.
Regulatory Policy
UBS has obtained more than 180 approvals from roughly 80 regulators in over 40 jurisdictions to complete the mergers of its parent and Swiss banks and transition to a single U.S. intermediate holding company.
Economy Insights
UBS expects ongoing geopolitical tensions and anticipation ahead of U.S. elections to result in heightened market volatility compared to the first half of the year. The bank is modeling 100 basis points of U.S. dollar policy rate reductions by the end of 2024.
Industry Insights
The Investment Banking industry is showing signs of recovery, with UBS capturing sizable market share gains in Global Banking. The bank’s strategic additions to reinforce its capabilities are paying off, as evidenced by the highest second quarter on record in Global Markets.
Key Metrics
Financial Metrics
- Net profit for H1 2024: $2.9 billion
- Underlying profit before tax: $4.7 billion
- Underlying return on CET1 capital: 9.2%
- CET1 capital ratio: 14.9%
KPIs
- Net new assets in Global Wealth Management: $27 billion (2.7% growth rate)
- Gross cost savings achieved: $6 billion (45% of total target)
- Total staff reduction since end of 2022: 23,000 (15%)
Competitive Differentiators
- Global reach and capabilities, particularly in Switzerland
- Strong client trust and retention despite integration challenges
- Enhanced scale in alternatives and indexing through Unified Global Alternatives unit
- Improved capital markets and advisory capabilities in the Investment Bank
Key Risks
- Ongoing integration challenges and potential disruptions
- Heightened market volatility due to geopolitical tensions and U.S. elections
- Regulatory and capital requirement changes, particularly in Switzerland
- Competitive pressures in the wealth management industry
Analyst Q&A Focus Areas
Analysts focused on several key areas during the Q&A session:
- NII guidance and expectations for GWM and P&C
- Capital requirements and potential impacts of Basel III final rules
- Cost savings progress and future expectations
- Investment Banking performance and outlook
- Wealth Management Americas profitability and margin improvement plans
UBS Group AG Summary
UBS Group AG has demonstrated strong performance amid challenging market conditions and ongoing integration efforts. The bank’s focus on client-centricity and strategic investments positions it well for long-term value creation. Key areas to watch include the progress of integration milestones, particularly client account migrations, and the bank’s ability to navigate potential market volatility in the coming quarters. UBS’s success in retaining Credit Suisse assets and capturing market share gains in Investment Banking bode well for its future growth prospects.
