Q3 2022 UBS Group AG Earnings Call
Ladies and gentlemen, good morning, welcome to the UBS third quarter 2022 results presentation.
The conference must not be recorded for publication or broadcast you can register for questions at any time by pressing star one on your telephone.
Could you need operator assistance. Please press star zero at this time, it's my pleasure to hand over to Sarah Mackie UBS Investor Relations. Please go ahead Madam.
Okay.
Good morning, and welcome everyone before we start I would like to draw your attention to our cautionary statement slide at the back of today's results presentation.
We also refer to the risk factors in our 2021 annual report together with additional disclosures in our SEC filings.
On slide two you can see our agenda for today.
It is now my pleasure to hand over to all Commerce Group C.
Okay. Thank you Sarah good morning, everyone.
I'm pleased to share good results with you for this quarter I met them.
Macroeconomic and geopolitical uncertainty, we executed with discipline.
We delivered $1 7 billion in net profit and a return on CET. One capital was 15, 5% our capital position remains strong with a CET one ratio of 14, 4% as you can see.
And we managed cost well leading to a cost to income ratio of 71, 8% and our balance sheet for all seasons and strong risk management continued to be an asset for our clients.
And the investors.
Turning to the next slide where you have the overall overview of the commercial momentum.
This quarter I spend a lot of time with clients across the globe and their feedback was really consistent they're concerned about inflation about the energy prices the war in Ukraine.
Residual effects from the pandemic.
Economies are slowing down central banks are raising rates at record pace and that's affecting asset levels.
It's affecting market volatility and investor sentiment across the globe as well.
And we expect this to continue at least through the end of the year.
Client activity has been differentiated across segments institutional clients remain very active on the back of high volatility of foreign exchange and rates with private investors generally remain on the sidelines waiting for signs of improvement.
In all cases, our teams have stayed close to our clients providing them with advice and solutions.
And you can see the snapshot here on this slide.
We have private clients seeking opportunities to protect and grow their wealth.
Our diversified portfolio through mandate solutions.
And made additional commitments to private markets and as a result.
For the the need for guidance, which we gave we saw 17 billion and net new fee generating assets coming in through the quarter.
Wealth management clients.
Seeking higher yielding products on the back of higher interest rates, we're capturing this demand with savings through Cds and money market funds.
And half of the 16 billion of net new money coming in through.
Through our asset management and money markets. So I have a $16 billion in money markets. So 8 billion is actually coming from gws clients.
We also continue to actively manage our deposit offering.
Optimize net interest income and that's where we saw a 14% growth year on year and our deposit taking businesses.
And lending we've seen our clients deleveraging Lombard loans, specifically in Asia Pacific, but we saw demand for mortgages in Switzerland, and the U S.
The net impact is a loan book that was flat this quarter, excluding foreign exchange.
And as I mentioned institutional clients continue to trade actively and that resulted in a lot of strong performance for global markets, given our mix and geographic footprint, we benefited from foreign exchange and rates volatility, which resulted in the FERC.
Revenues being up 64%, but we were impacted by equities being down.
And I think this shows our ability.
And flexibility to deploy resources across the asset classes and that shows the value of the way we are organized.
It also kind of shows.
That our technology investments specifically in electronic FX.
Our supporting a record quarter in FX as well.
As you can see consistent execution of our strategy is driving organic growth despite volatile market conditions.
Now moving to the more regional picture, that's basically where the execution of our strategy towards our clients really comes together.
In the U S.
The economy is holding up relatively better than other regions consumer balance sheets and economic.
While employment data are solid and inflation remains high as a result, we project had been shipping at 525 in the quarter and such elevated rates increased the risk of recession.
Interest rate hikes have reduced asset levels are muted client activity as well.
But they have supported net interest income, which is up 38% year over year. So that's on the U S and wealth management specifically there.
Demand for separately managed accounts and no charges continued to drive inflows.
That fueled edge over 4 billion of net new fee generating assets.
Mostly from our existing financial adviser base.
We also had a strong quarter in advisor recruiting and our hiring pipeline remained strong as well for the fourth quarter and that should suit support. Our flows are also through the fourth quarter and beyond.
These hires and align our commitment to drive scale and improve the gws Americas cost income ratio, which was below 80%. This quarter. So you see the scale coming through there.
We remain firmly committed to our U S growth strategy, which is focused on personally advised clients. We will also continue to develop digital solutions with remote advice.
Within our existing technology, but yet.
Now moving to Switzerland.
Our economists expect it too narrowly avoid a recession due to relatively lower inflation and limit the dependence on Russian gas.
That's at many of our Swiss retail and small business clients will also be impacted by disruptions across the rest of Europe , and we're focusing on supporting them through the energy crisis.
Ability of our businesses in Switzerland is by the way demonstrated by our continued solid growth.
2 billion in net new loans 2 billion in that new deposits and 40 million in net new investment products, a real solid performance in Switzerland.
Now moving to EMEA.
That's where the macroeconomic and geopolitical environment is having the most significant.
The impact as you can imagine.
Clients turn to us as indicated earlier for advice in these uncertain and unprecedented times.
And then that fee generating assets on the back of that increased by more.
More than $6 billion in EMEA.
We also completed the sale of our Spanish business and also the SFA wealth management business.
In Switzerland and that further optimized.
Our footprint and as you know we are looking at further.
<unk> of efficiency and profitable growth in EMEA, it's part of our strategy and we're delivering it this quarter again.
Lastly, Asia Pacific We continue to believe that there was attractive structural long term growth prospects in the region, but the short term.
It is clear that our clients are dealing with COVID-19 related restrictions still that's delaying recovery.
Also in the property sector.
We think there was a path back to 5% economic growth in China, and Asia Pacific as a whole.
At some point next year, but the question is really about timing.
We expect is that these dynamics will restrict our client's willingness to take on leverage.
And also it will limit and their willingness to transact.
At least through the end of this year and that's that they continue to look for us for diversification and investment expertise and as a result, we saw another strong quarter of net new fee generating assets also in this.
Our region with 7 billion of inflows.
Yeah.
Our annualized net new fee generating assets.
Growth rates in Asia Pacific is actually 12% year to date.
And Asia Pacific's primary markets.
We outperformed fee pools and took market share. We claimed the number one position in equity capital markets for non domestic banks and that three of the top four equity raises in Asia Pacific, including Hong Kong's largest IPO in over a year.
So in summary, all of the regions are faced with complex macro geopolitical environments, but.
We're clearly showing to be very focused on supporting our clients and be very flexible in the way, we allocate our resources across the DFS bank as well.
And using our global footprint and diverse capabilities to continue to add value for our clients.
Turning to slide six here for you that demonstrates how the consistent execution of our strategy has delivered a good financial quarter.
Net profit at $1 7 billion return on CET, one capital at 55% cost income ratio as earlier mentioned at 71, 8%.
Of course, we are we will continue to be focused on efficiency and expenses and our cost discipline.
Photo intensifies, we fight inflationary pressures and we prepare for tougher times to come.
Turning to slide seven.
Given the environment that we are that we're in.
We felt it was important to give you a peek into the.
With this position of strength that we have are facing some of these uncertainties.
Our capital ratios remain well above our target levels at 44%.
CET one capital.
We continue to operate with a significant amount of liquidity.
To support our clients and meet regulatory requirements as well.
Our balance sheet for all seasons is supported by a high quality loan book, 95% of our loans are collateralized.
And the average loan to value is less than 55%.
We have a model that uses limited credit risk and has a high capital generative character and with that we remain confident in our ability to deliver attractive and sustainable capital return to shareholders.
To summarize.
We delivered a good performance in the quarter.
Our capital light model, our global diversification and the balance sheet for all seasons continue to be a real competitive advantage.
And the first nine months of the year, we consistently executed with discipline.
In line with our targets every quarter and that gives us also confidence in our ability to meet our return of CET, one and cost income ratio targets for the full year on a reported and also underlying basis.
With that Sarah over to you.
Thank you Ralph good morning, everyone.
We delivered a good set of results, while maintaining our balance sheet for all seasons and <unk>.
Against a complex market backdrop.
Net profit in the quarter was $1 7 billion.
Well I've just walked you through.
Potato profitability with return on CET one.
At 10, 5%.
Cost income ratio of 71, 8% or.
Our underlying profitability was not very different.
Slide 23.
Walk through the items, which are the same in nature last quarter.
Total revenue was down 10% against 6% so our expense.
That's impacted both by 300 million for a net effect of around 50 million.
The net credit loss really like $3 million.
<unk> was $14 million last year.
Great stability in our credit metrics and strong risk management.
On slide 10.
Macroeconomic environment reflected depressed equity and fixed income markets.
Lower level of client activity.
Subdued M&A and capital markets and higher rates.
Our revenue story mirrors.
The same team.
Underlying revenue X effects down 7%.
We had lower asset base and.
<unk> seen no.
Global banking revenue, but higher combined NII and <unk> am in P&C.
Global markets revenue was broadly flat.
A very strong prior year quarter.
Now moving to NII on page 11.
The drivers of NII has been consistent over the course of this year.
With a strong benefit from rate, which you see in the first bar on the chart.
Our actual deposit data as well.
Better than we modeled.
The rate impact was partially offset by.
The positive volume and mix.
On volume next door on the chart the impact was driven by GW land, where deposits decreased by $23 billion last quarter.
$13 billion this quarter.
In line with peers.
This accounted for almost half of that 13 billion decrease.
And regarding mix.
We saw clients move from suites and current accounts into other UBS deposit products.
In this quarter.
On a net basis, we retained effectively all these assets within UBS.
Including over 60% in deposit products.
Another 25% in our own money market funds.
So overall for this quarter.
<unk> was up $223 million or 14% year on year.
In the U S dollar increase in NII was 41%.
But it was partially offset by a reduction in Swiss franc.
Two lower F&B benefits and deposit fees.
Looking ahead.
Based on the forward.
We expect approximately 200 million incremental NII in the fourth quarter versus the third quarter.
Of which 2000 GW in and one third in P&C.
This would lead to a total increase of $1 billion in 2022 versus last year.
We expect 2023 NII.
Higher than for Q2, two annualized given our exposure to Swiss franc, and Euro and no further F&B and deposit fee impact.
Our USB NII is expected to peak in 2022 or at the beginning of 2022.
Now turning to costs on page 12.
This quarter's operating expense was down 6% year on year.
Excluding litigation and FX.
Number was down 1% with inflationary pressures on salary G&A technology, and consulting costs offset by variable compensation.
Year to date on the chart on the left.
Expense was down 1% or up 1% ex litigation NSX.
If you also exclude variable comp expense was up 3%.
For the full year.
We see expense ex litigation and effects.
One 1% year on year.
We are on track to deliver an incremental $400 million in 'twenty two.
Part of our program to deliver $1 billion plus by 2023 other announced last year.
We are laser focused on costs and in the context of the current environment.
<unk> put in place specific measures regarding noncritical hiring Gianni consulting and tech population.
Let's move to our businesses on page 13, starting with GW land.
GW and profit before tax in the quarter was $1 5 billion down 4% against a record $3 21.
It was down 10%.
FX and gains on sales in <unk> 'twenty 'twenty to 'twenty one.
Revenue was 4% lower than last year.
As market headwinds continue to challenge, our asset based and transaction revenue in all regions.
This headwind was partially offset by net interest income, which was up 23% year on year and up 8% sequentially. As we continued to actively manage deposits across margin volumes and mix.
The operating expense ex litigation NSX was down 2% versus last year.
Demonstrate our strong cost control that allowed us to deliver a cost income ratio of less than 70% in gws and less than 80% in Americas.
Net new fee generating assets was $17 billion in the quarter and five 5% annualized growth with positive flows into self directed mandates SMA and alternatives.
Ill walk through it with the strength, we saw across the regions and for the past 12 months, we attracted $64 billion of net new fee generating assets, which represents around a 5% growth rate.
Net new lending in <unk> was negative 1 billion driven by deleveraging in APAC. However, we saw continued growth in Americas and Switzerland.
Looking ahead, while client sentiment is likely to remain muted in the fourth quarter.
Existing pipeline will be supportive of net new fee generating assets.
Moving to asset management on page 14, with a profit before tax of $140 million.
Total revenues decreased by 13% or 8% ex FX.
With lower net management fees, driven by market headwinds and lower performance fees.
The cost income ratio was 73% up year on year with lower revenue and expense broadly flat as we benefited from FX and continue to invest.
As Ralph mentioned net new money was strong in the quarter at 18 billion of which $16 million in money market funds with significant wins in the U S and EMEA.
Excluding money markets net new money was $2 billion driven.
Driven by fixed income.
Now on to slide 15.
The IV delivered $447 million in profit before tax and a 14% return on attributed equity.
These are solid results, considering our revenue mix and geographic footprint.
Thanks to a capital light business model, we can operate with a non W. A density of 30%.
Compared to our estimate of around 50% for our U S peers.
Revenue in global market of $1 7 billion was down 1%.
Up 2% ex FX against the very strong prior year quarter.
If you think about the environment. It was one where volatility in equities was lower than in FX and rates.
And in that context, we had a record third quarter performance in E FX FX rates and prime brokerage.
Offset by reductions in equity derivatives and cash.
Global banking revenue was down 58% to $329 million in line with very low levels of industry activity across advisory and capital markets.
The operating expense was up 3% ex litigation and FX, largely driven by inflationary pressures on salaries and higher technology expense.
On page 16, moving to PMT, which had strong momentum and an eight percentage point year to date increase in share of personal banking clients that are active mobile users.
Profit before tax in the third quarter was 430 million Swiss francs.
Total revenue was broadly flat year on year.
The emphasis in recurring and transaction based income.
Offset by lower NII.
Transaction based income increased 2% on higher revenue from FX and credit card transactions.
Reflecting higher spending both on travel and domestic.
Recurring net fee income was up 3% on the back of more than $2 billion of net new investment products over the past 12 months.
For the quarter and personal banking net new investment products had an annualized growth rate of 8%.
The credit loss release was $15 million.
Compared with $6 million a year ago.
Cost ex litigation was up 4% as we continue to make investments in technology to execute our digital strategy.
Finally on page 17, we maintained a strong capital position this quarter well above our guidance, while continuing to distribute capital according to our plans.
As of the end of September our CET, one capital ratio was 14, 4%.
Our CE tier one leverage ratio was 451%.
Turning to the CET, one capital ratio of work starting at 14, 2% at the end of last quarter.
Net profit contributed 60 basis points.
Partially offset by capital returns to our shareholders of around 40 basis points.
The net currency effect what Neil.
Quarter on quarter.
FX impact on CET, one and all WOA offset each other.
Our capital we can story remains strong.
We increased our dividend accrual from 51 to 55.
At 10% year on year increase.
And we are on track to buy back approximately $5 5 billion of shares for the full year.
In the first nine months of the year, we have repurchased $4 $3 billion and as of last Friday. The number was $4 6 billion.
This translates into a payout ratio of 94% year to date, including dividend accruals and buybacks.
To conclude.
No one is immune to the macro environment.
UBS is well positioned to face short term challenges.
We have strong capital.
Capital return diversification and limited credit risk. This is in addition to NII.
Across currencies and expense flexibility.
We are executing our strategy and focused on delivering consistent and attractive returns to shareholders.
With that.
Open up for questions.
We will now begin the question and answer session for analysts and investors participants are requested to use enhances what asking a question anyone who has a question you May press star and one at this time.
The first question comes from Stefan <unk> from Autonomous Research. Please go ahead.
Hi, good morning.
Very much for the presentation and for taking my questions.
I wanted to ask please.
Guidance.
You had previously said that cost might be up 2% for the year on an FX adjusted basis.
Now youre, saying it could be plus 1% could you maybe talk about what has changed.
Have you reassessed variable compensation.
You showed too slow to your investment spending plans or anything else to consider.
And the.
The second question goes back to what you said about NII in 2023, Sarah I missed what you said exactly you talked about and utilization and that's NII next year would be higher than an annualized number but I missed the basis could you maybe.
Repeat it for me thank you very much.
Yeah.
Sure Stefan.
Of course, yes.
Yes, so on the cost.
We gave the guidance that we would be up 1% ex FX and mitigation and that is in line with where we are for year to date this year versus a year ago.
In terms of the 2% guidance that you reference to this was done ex variable comp and on that basis, we are approximately at 3% and.
We will expect to continue to work on being below 3%, so with a 200, but right.
Rounding to 3%.
What's happening here is that you are seeing very strong cost discipline.
The reported and ex FX and ex.
And litigation story on and Youre seeing that we're managing the entire cost base, but we're also seeing some inflationary pressures that were higher.
Then those that we were projecting at the time when we gave the guidance.
And on the NII.
So literally it this fall also.
See uptick on NII dollar rates coming through but euro and Swiss francs and pound rates coming through also in the fourth quarter and with that increasing alright.
Alright, and then guidance there by another $200 million and then how to look at that from a 23 perspective. It is that we are indicating that that will continue the uplift there will continue in the different currencies more so than in the U S. Dollar because we expected to peak in the fourth quarter, maybe beginning of 'twenty three.
And therefore for 2000 trailers should start thinking about the annualized number for the fourth quarter, So four times fourth quarter with upside.
The way we guided.
Great. Thank you very much very clear thank you.
The next question is from Amit <unk> from Barclays. Please go ahead.
Alright, thank you.
I have one question on the NII guidance.
Again just to check in.
When we took out the 200 million and towards $1 billion and next year.
And what kind of mix effects Chantal.
Plus it fly.
Assumptions are in that.
And then secondly.
And just kind of curious if you wouldn't mind, just getting into a bit more color in terms of the costs.
Which are the areas, where maybe you are.
Kind of Huntington and <unk>.
This spending.
And what impact that has and also how youre thinking about investment into Asia as well.
At present, thank you.
So it can give you some more insights on your NII.
Are we kind of.
Go ahead.
So on the NII and we already gave you a lot of inflammation with guidance in the fourth quarter as well as additional directional guidance for 2023, and so that's okay, we'll pick up with even more than that next quarter. When we report earnings.
But we.
We feel that we.
The exposure that we have with half of our <unk>.
Balance sheet being in U S dollars, but the rest are not being in U S dollars. It gives us upside in those other currency that is worth mentioning to you at this point.
And then on the cost and also in Asia, specifically, but also in the cost.
And what Saar was indicating is that we are.
<unk> really focused on the cost side, we have been the whole year clearly we had inflationary pressures that busy at the beginning of year nobody had foreseen, but nevertheless, we we manage a tight tight ship here and there.
Also in the fourth quarter, she was indicating that where we really want to be.
Very clear.
Making sure that we don't.
That we don't impact the strategic investments nor that we don't impact the good cost, but we are very strict on non critical and non critical hire. So we continue hiring but only for the critical hires because we want to hold back on some.
We have to be more careful around <unk>.
And and consultancy costs as well so it will not be kind of a impacting the strategic projects at this moment in time.
And looking at further participation in the technology budget. So those are the four areas. We're very much focused on then into your question around Asia.
Asia, We know always go through bigger is a bigger downturns and upturns, then anywhere but the underlying.
Current is always positive specifically if you look at it from a wealth pool perspective in the wealth pool development perspective, and that's the underlying basis for our strategy in Asia Pacific We expect this to grow over time.
Anywhere between 5% to 9%. So it is an area, where we want to continue to grow where we see 7 billion of net new fee generating assets just for the quarter. We expect some of that flows to continue as well. So it's an important region for us to continue to invest in the wealth business.
As well.
Okay. Thank you sorry can I just follow up just ask Eric just on that point.
So there are some fully amendment mix assumptions within the $200 million I'll take that.
Okay assumption okay.
This is not a static balance sheet this is guidance.
Thank you.
The next question is from anchor Rangan from Royal Bank of Canada. Please go ahead.
Yes. Thank you very much for taking my question.
That's basically just around the cost.
Thank you for giving the nine month trend on the cost ex FX and litigation I was wondering if you can give us the revenue equivalent on an FX adjusted basis for the nine months.
And I hear you on strategic investments, but.
Do you see any need to potentially at what point.
Jos what's you're thinking considering further actions on costs.
And then I think you mentioned in terms of the U S offering all the costs will be.
Alluded to you on your in your current budget can you just confirm that.
And how you're going on the dollar.
Building out the U S offering without the web font acquisition. Thank you very much.
Sure.
You go out now and so on.
Revenue ex <unk>.
And again, we're down 7% and we actually.
Put that on on one of the side the revenue side, yes.
That's correct Mike.
Is that nine months.
The year on year.
On.
That's two or 321 versus $2 22 for the nine months I can pull it for you.
Even more effects.
On the revenue in this quarter and then on.
Last quarter, although last quarter there were some too so we can come back to you with the exact math on online DSS was for the nine months okay.
On your calls or investments and strategy and also to as to the U S. Very specifically so clearly.
<unk> jaws are important and we will not continue to invest in areas, where we don't foresee growth to come through right. So.
But we are committed to the strategy as we laid it out and that foresees, a continuation of technology investments as well.
We have not really increase our technology investments, even this year, but we have been able to generate quite some room in terms of the efficiency of the technology investments through agile. So that's where we create the room to continue with technology investments that are in line quite some of our.
Strategic initiatives, both in the investment bank.
As well as on the wealth side and P&C.
Now more to your question.
In the U S.
Clearly a change of tactic is not a change of strategy.
The U S is a very important region for us as the largest wealth pool in the world. We expect this to continue to grow over time by around 5%. That's why it is a focus of our strategy. That's why we will continue to invest there.
And the investments that we're making in the U S. Our first and for all to support our financial advisers basically in what we call. The personally advice segment, where we need further digital enhancement in terms of supporting them and the work they do their workstations.
Assesses behind fulfilling the needs of our clients.
It is about developing more banking products and also to to deliver dose digitally and you've seen this quarter that we've been quite successful in developing additional banking products more on the on the on the on the savings and the deposit side.
That's very important there as well so the banking products to support that part of our strategy in the U S.
Looking at the higher well sackman to family offices to do more bespoke business there.
A very good combination of what we can do from the investment bank perspective, and the coverage on the wealth side. So that's also there and then on the digitally.
Digital first and remote advice.
The business that we do already we have quite some remote advice and wealth management advice centers activities already that's for the lower wells pads. So to say, that's where we will continue to invest as well too to support that business that we have there.
<unk> has always been at the.
The idea.
And that will all continue within the plants and the tech purchase that we have.
Okay. Thank you very much.
Okay.
The next question is from Adam <unk> from Mediobanca. Please go ahead.
Good morning, Thanks, very much for the questions I had one.
Understanding the flows picture and then one on capital.
So clearly you see very strong I, just wonder and understand how kind of the flows into money market fits into that you mentioned, how much is being captured in asset management and is that included within the fee generating assets slide print in gws, So just to understand that and kind of some of the deposit moves against.
Some of your mandated business within demand would be great.
And then secondly on capital I clearly the demand for your balance sheet from your wealth clients is much lower than you may have anticipated when you put out plans earlier in the year I just wanted to hear kind of an update on your thinking on balance sheet deployment.
Again kind of excess capital and buybacks and how that might change given.
Clearly that's a much lower demand for your balance sheet.
The more uncertain times.
Thank you so on the flow side net new fee generating assets that is truly sort of $17 billion.
It's more than that is actually into the mandates. So thats not the money market business of asset management. It is including the SMA business in the U S.
So for example in the U S. You see is actually the number is $4 4 billion of net new fee generating assets coming through in the U S. Four 9 billion of that is in SME business the money market business outside of these numbers.
And any color on the flows have been into and given the uncertainty.
Yes so.
So for the for the fourth quarter.
You can expect some continuation for example in Asia Pacific.
But certainly also in the U S on the back of a strong.
Quarter in terms of hiring financial advisors, both in the third quarter and this continuing also in the fourth quarter. You can continue you can assume.
That will support flows also in the fourth quarter.
So going to your capital question, maybe if I lay out our capital priorities that might be helpful. So it's as it was maintaining our balance sheet for all seasons, including of course, our regulatory requirements investing in growth opportunities.
A progressive dividend and then this tubing.
Excess capital to our shareholders and so.
You'll have seen a dip.
Exactly like that.
This year, we're on Johan we have supported our clients, but also you'll see for example in this quarter a reduction in our risk on our U a E. R. W. A which is what we believe is the right decision to make on a risk adjusted basis.
You'll have seen as far example, reducing by 46% our LTM book and we have done that but on the flip side you have seen us increasing some of the lending.
Because it was appropriate to do so and done in a cautious but absolutely open for business our way.
<unk> or in P&C and so those are things that we have done and of course on the deleveraging in Asia is affecting also the reductions in the lending. So we are open for business. We wants to maintain this balance sheet, but that can also support on supporting our clients and in fact our clients.
Seeing as a source of strength.
We have done 94% of capital return on if you take the guidance I have given you pause on the dividend for this year.
And we continue to expect to have material share repurchase and a progressive dividend for next year.
Great. Thank you Roger.
Yeah.
The next question is from Flora book I Hope from Jefferies. Please go ahead.
Yes, good morning, I have two questions on the NII again. Please the first question just to follow up on the guidance that you provided for 'twenty three.
Any way you said that you basically can consider at all times. The Q4 NII. This upside is that guidance based on the group NII or is it based on the sum of Gws, plus PMT and actually talking about what's driving the difference whereby the group NII is lower.
Then the NII.
P&C is that because of the accounting estimates raising the group Sunshine any so how do you expect to evolve in the coming quarters and then the second question is on the loan growth outlook for 2023, specifically in the wealth management business, because if I look at the trend that you see you know what there's been a slowdown in.
The lowest especially outside the Americas, but even in Americas, whether I look Q on Q or year on units are now hardly growing anymore. So what do you expect in terms of loan growth in wealth management from here given the environment of higher Lee. Thank you.
Thank you so on the loan growth.
Yeah.
Clearly as.
Sarah was indicating we are open for business and specifically the loan growth.
In the wealth management businesses.
Is not a very high risk.
It doesn't have a high risk anomaly.
For the moment with markets going down we see.
Walmart is going down as well because they are a reflection of the underlying collateral.
Therefore, if markets continue to be like this or go up you could expect some pick up.
I don't expect markets to really go up very fast next year, so from that perspective on the Lombard.
I wouldn't expect too much coming through.
One could maybe see some loan growth coming through in what we call the global family and institutional wealth business for setting that business up as you know across the globe.
That is a little bit more chunky.
That business is larger loans as well.
So this will not be kind of a perfect trends quarter over quarter, but some deals may come through there.
Would add to the loan portfolio and wealth and then on the mortgage side that really depends on yes on how the economies develop really.
So we'll see so yes, I think the summary is overall a subdued demand for loans.
What you could expect next year with some more.
Maybe a more spiky profile in terms of the quarter zero quarter developments.
On the back of the successes.
In global family and institutional wealth business.
So in terms of your question on NII soda.
All of the numbers, we have covered for GW in P&C. If you look at the total group on the difference is.
Not the accounting asymmetry, which is.
In an intra instruments at fair value, which is not an NII, but.
But to IV.
So it's really an accounting on we.
Reported to you when we give you global markets all in when we give you banking on that as a component of NII and there was a component of the other.
Pieces, but for you to think about it it is much easier to think about display businesses in terms of NII. That's GW in P&C and then on the.
The markets businesses in terms of on the volatility on what we're seeing in the macroeconomic environment.
Well I am banking based on the one that we are seeing so.
That's the nature of the guidance that we have given you.
You can track that because we report a search.
Thank you.
The next question is from Jeremy <unk> from BNP Paribas. Please go ahead.
Thank you I just wanted to follow up about Asia wealth management. Please and thank you for the comments earlier on you talked about caution from clients in terms of their appetite for leverage and transacting and I was just wondering if you could put in context of strong net new money flows relative to that so clouds.
Not interested in leverage or transacting, what's the nature of these flows whats the source of strength I mean is it flight to safety.
Capital out of China, what sort of how would you characterize those strong net new money flows against the backdrop of caution.
Sort of following on from that you talked about caution remaining at least through to the end of the year.
I was just wondering if you're seeing any signs of stabilization or improvement.
Improvement so really we're just sitting and waiting for the time today.
And the last question on what.
The broader mood.
They brought a mood okay. Thank you.
So the Asia flows.
Six 6%, so almost 7 billion of net new fee generating assets there.
It's.
I mean, the real underlying trend there.
Is that clients are seeking more guidance and therefore, they're more open to do mandate business with us moving away from their own transactional.
If you you know the.
Transactional business is not necessary caught by.
Bye.
The fee generating assets and therefore, you see the you see clients moving to.
To get more advice and do more mandate business with us so it's not necessarily a flight to safety. It is a flight to advice and guidance.
In the period in which.
It's more about trends rather than the occasional opportunity and that is a bit of a change of behavior that we that we see in our in our client base and we're very happy to be able to cater to that as well over time, and certainly if things kind of bottom out or at least a more predictable and the.
In 'twenty three we would expect some of the transactional business on the back of the change behaviors to come back in Asia as well.
No the overall mood.
Jeremy Yeah, that's a very interesting one.
I think particularly at Asia sorry.
Particularly in Asia sort of whether the move towards the sort of confidence amongst the Asian clients because you said.
Don't expect much improvement until the end of the year.
And I just wanted sort of are there any signs of improvement yet or is it still just too early.
No that's too early.
Maybe to kick off has been the confirmation of she is the president for another five years, which at least at least gives us predictability around.
How how policies will develop in China.
We do expect that.
The COVID-19 measures to be lifted over time.
Not very quickly because you know until the new years that may still be kind of a.
The moment of caution.
Those people are traveling and see families, but thereafter, we would expect some.
Some list of measures there.
As well for the continuation of a further support the property sector should help as well.
If we're through that we would expect some more positive signals to come through in our support for the Asian.
Economic development and therefore, we do think it will go back to 5%.
Asia, and specifically driven by China issue as you know.
But the timing of that is really the question.
Okay. Thank you.
The next question is from Magdalena Stoklosa from Morgan Stanley . Please go ahead.
Thank you very much I I still have some questions about this kind of the sources of flows net new money flows this quarter because of course.
The numbers have been very very strong so can I just kind of tackle it from slightly different perspective, when you look at those flows.
In the third quarter is it existing or is it is it new clients or is there is there a certain level of concentration.
In those kind of flows across geographies or is it you know kind of much more broader based I suppose particularly.
In APAC, but maybe also the underlying EMEA trends because that number was also quite quite strong and my second question is on your kind of from IV expectations. Because of course, you know fixed income trading, particularly on the macro side for the industry for yourself.
Being kind of very strong.
Over the last kind of nine months in particular and I'm. Just curious you know how do you think that kind of higher for longer interest rate environment look like for that fixed income trading into into 2023 as the kind of as the higher rates kind of settle in and the volatility potentially comes down a little bit and also.
So.
I've heard you this morning kind of talking about.
Advisory unlikely to return in the fourth quarter, but how do you think about your advisory business into next year because of course next slice it.
It's very important for Ya. Thanks, so much.
Hi, Margaret there's a whole slate of question sector.
[laughter] okay.
I'll try to make it beginning here.
On the flows.
It's it's literally a combination of existing clients being more interested in doing amended business with us specifically in Asia, that's where we see that change in EMEA.
In the U S. The U S, particularly driven through the success of our SMA business as well in EMEA is also new clients coming on in Asia by the way is also new clients coming on so it's a bit of a mixed bag.
This is about net new fee generating assets by the way Martin not net new money right. So we do separate those two concepts.
Because net new money may not be net new fee generating assets audio ad or other way around so.
So I want to kind of caution that we really stick to our definition of net fee generating assets, which basically means it is about assets that we manage on behalf of our clients, where there was inflow coming through new money coming into a mandate or dividends being paid.
The mandate and staying within the mandate that's the way this D C assets assets grow.
And Thats important then.
On the fixed income business, specifically more on the FX business, that's basically where we really profit.
Clearly no we in the second quarter, we already indicated the shift from the market and specifically for our franchise an important shift from what we would call micro which is more of the equities business that we're really really leading and globally as well as you know to more the macro which is the fixed income in our rates business.
This.
We have a very high exposure and we have a very.
<unk> strong position in the foreign exchange business and that's why we have profited.
From our institutional clients being very active on the back end of the volatility there now these rates will continue.
We'll have their effect on.
FX as well so the combination of that and with that the resources that we have moved from the equities business and some of the deleverage we use for that business depending on how the market develops we will continue to profit from it.
The market is going honestly.
No I really don't know markdown on the on that one and then on the banking business more on the capital markets business.
Yes.
What I said this morning was more of that given where the market currently is deep.
The volatility in the market. The fact that there was a bit of a risk off.
Our behavior.
On the investors site that with six or seven weeks to go in this year, because basically you should I mean, we have.
We probably have the first week of December but thereafter markets are normally closed anyway. So we have six more weeks I don't think that business will.
We will perform well the markets are just not there.
And in the next year.
It will take quite some time before the confidence to come back in the market. That's one and then there will be investor appetite, but then you're still needs.
Also the.
The ones, who need to capital or want to sell a business from that perspective to be able to accept the fact that it will go at lower valuations.
It was the high valuations are still fresh in their minds.
So it's it may take some time as well before they have turned the corner around accepting lower valuations for the capital market space and so.
Once there, yes, you will probably see the supply and demand coming back in and getting a better market situation, but yes. So I would be surprised that going into the first quarter that the first quarter would be good there I don't think so.
Thank you very much.
The next question is from Ken <unk> from J P. Morgan. Please go ahead.
Thanks for taking my question two questions.
One is on costs, just coming back to the numbers I'm, just thinking 2023 I recall.
On the correct guidance, what's that cost growth of 2% plus or minus variable.
In 2003 should not be too different and I was wondering can you reconfirm that clearly things have changed in terms of inflation outlook et cetera.
Does that kind of indications still holds a festival.
And then the second question is on.
Cost income target of 70 to 73 that you're clearly making this year.
Can you run me. So you have kind of stress scenario since you have a lot of mark to market revenues.
How you think about the offsets that you can take in order to bring yourself back towards that level or even close to that level.
So we can understand how the dynamic would work on your controlling the cost.
Sure.
So first of all in terms of how we think about expense on a primary Lance is cost income ratio and we are currently in our planning for 2023 and you can be assured that we are intensely focused on being within our target.
And we're looking at that in different.
Scenarios.
And to your point on.
Actually on or looking at actions that we would take on east, yes environment deteriorated significantly from where it is today. So we.
We mentioned for example that we executed this billion dollars gross expense save that we're on track for the $400 million.
And that we.
Had planned for this year, we've executed the $200 million last year notes $400 million that is planned.
Planned for next year.
On can be reinvested and that's what we have done so far but we don't have to that's one of the levers for example.
Ralph and I, both talked about on the levers that we are already taking the non critical hires the gen consulting making sure that our polymerization is that intentional for the tech investments that we're doing already and then if we need to do more as we said we will.
But if we do it too early there is an optionality cost today.
And just on.
Should we think about the the times of absolute cost guidance is not relevant anymore, we should think.
From now on going into 'twenty three around cost income target.
The primary announce is definitely cost income target. Once we give you. The guidance is we think that there was anything complementary that would be useful. We will then you see for example that this quarter. We are giving you a guidance to make sure that you can be helped as you prepare.
The fourth quarter.
Alright, thank you.
The next question is from <unk> <unk> from HSBC. Please go ahead.
Yeah. Good morning, everybody I'll start with two questions first off on the U S wealth strategy.
You said, you're still investigating and tech platforms.
Client segments.
Given the well from not proceeding, but the Regina.
Pretty significant pullback across tech valuations.
How are you thinking currently about opportunities to expand.
Via M&A going forward.
The second question is just on.
On a topic, which came up on the <unk> call and I see you've highlighted again in the <unk>.
Statement.
<unk> report with the change to switch liquidity requirements.
Which I think became effective.
July .
Have you got any better clarity.
In terms of how that may impact the P&L as you move into next year.
Yes. Thank you.
So appears so on the wealth.
In the U S.
<unk>.
It.
So.
We would never really looking at it.
Getting into new segments per se right. So we have.
A lot of clients and what we would call lower wealth band 250000 to one 2 million.
One we have 2 million clients in workplace wealth.
Those are segments that we already cater for <unk> for which we feel that we have to be more efficient in terms of how we deliver our services, but also that we need to have a service to keep those assets.
Assets.
With us.
Clearly over time, if you have an appealing digital offer and few of the generational transfer of wealth.
From even wealthier customers to their next generation you should also be able to keep that in house. So it's not necessarily that we were looking for a new wealth segments. This is about the segments that we're already in and making sure that we have the right offer photos segments.
As well now even on the personally advised which is the core of our business. There we need quite a lot of technology investments in order to support them and the way they advise their clients their workstations. The back office the banking business that we're developing is a lot of technology investments as well.
So so across the different segments that we cater for them. We will continue to have a high technology investments in the U S in order to get better productivity and better.
User experience.
On the liquidity ordinance.
So as you know it became effective in July 2022, and there is a transition period of 18 months and the way I think about it is if you look at our current level of.
Our liquidity is very high and so when you think about the change in the minimum liquidity requirements.
That would be.
Not from the levels of cushions that we have today. So we have this level of excess liquidity.
Therefore, when you think about the balance of the two we don't think that it should have a material impact.
On our profitability.
Profitability and we're certainly in discussions to continue to make sure on.
We get full clarity on the second phase of the implementation.
Great. Thank you very much.
The next question is from Nicolas Guyon from Kepler Cheuvreux. Please go ahead.
Yes. Good morning, I have two questions. Please the first one is on <unk> and I want you to know if we should expect any regulatory inflation or a Q4 this year and maybe also into next year.
The second one is coming back on your sharp increase in client advisor in that in America.
I would like to know whether or not this trend will continue.
Kathryn, especially in the region and if you have already witnessed some.
Some flows coming from this advisory in America and to realize.
So on the regulatory cost inflation.
We have all of that embedded in the numbers that we are giving to you and so.
And there is always an additional things to do and we are reflecting that in our cost base by we're not pointing to specific.
In that regard.
Of course, all the critical hires that don't necessarily for that we always prioritize in terms of the growth in the.
Essays on we did have a stronger recruiting quarter, which oh, Ralph pointed out and.
We also have the pipeline, which I want to ask about <unk>.
We are not being more specific about when it might be going forward.
But this was a very good liquidity requirement.
Thank you.
The next question is from Andrew Coombs from Citi. Please go ahead.
Yes.
Good morning, two questions space, Firstly on the NII sensitivity in your prepared remarks, you talked about the deposit beta being better than expected.
At the same time, you've seen quite a thing that can offset that mix shift.
And the deposit base.
So perhaps you could elaborate on your expectations on the impact of deposit mix shift going forward into 2023.
How much of an offset.
That might provide.
And then my second question would just be on.
The net fee generating assets the demand youre seeing baked in asset management and wealth management, you talked about an increase in demand for Cds and money market products, putting them they lock in rates and the additional yield thats providing.
Are you seeing a mix shift within the existing client base as well into the lower margin products.
The average fee margin on those basket the broader asset base would be helpful. As well. Thank you.
So if you look at.
The chart that we gave on you'll see the proportions for this year and that was.
Related to U S dollars.
Dollar we have gone very fast very high and therefore, you'll have seen across the industry as they are a bit of both volume and mix impact that's a normal phenomenon.
The extent that the.
Our rate curves on in Europe on our hi, Les on fast.
And then you would be at different points. There and then on we also have an are on very strong on P&C business, which is a different type of business in terms of like having all of the cash flow accounts of our clients.
In terms of retention and I talked about all of the assets. We are staying in our platform and also and so this is a twist in the accounts that are going into other products and its exactly what you said in terms of going into on.
Deposit products that are priced.
Kidney.
For that we got 60%.
Retention and then another 25% in our own money market funds and then the rest is going to be things like for example, treasury.
<unk>, which has also been interesting in the U S.
I think the core message here is that it's been a particularly strong quarter as to how we have dealt with this.
The sensitivity of clients around rates and how they're looking at it.
We have been really able to managed is keep the money within the UBS.
Our business lines, such as St right between what we would do within the bank in terms of deposits.
Or as invested assets in treasuries are money markets and then the money Mark specifically on the asset management side. So I think the team did a fabulous job keeping it in in the house with a with a approach too.
To ensure too.
To maximize profitability around that as well so and given the fact that we have all of these options and that we are so close to our clients. That's why we can do this so.
Job really well done.
And it's been good feel retention what does it imply in terms of margin mix shift.
We're not sharing that type of information at this point.
Okay. Thank you.
The next question is from Andrew Lim from Societe Generale. Please go ahead.
Okay.
Hi, good morning, and thanks for taking my questions.
The first one just clarification on the NII.
For 2023.
You gave that prior guidance of four Q annualize with a bit of upside is that on a static balance sheet basis or is that actual guidance.
Which takes account deposit.
Outflows in mix shifts and so forth.
And then secondly.
On your buybacks, you've got it to five at half billion photos.
For the full year, so that's a bit of a slowdown on the quarterly run rate for buybacks. Despite.
Despite your CET one ratio.
Inching higher this quarter I'm, just wondering why maybe you're slowing that down a bit and then looking towards 2023.
You're still sitting on a lot of excess capital I'm wondering whether you would consider having a payout ratio of above 100%.
To try and bring that down a bit thank you.
And so on.
The guidance that we have given all of the guidance that we have given both the fourth quarter guidance as well as the indication.
<unk> for 2023, all of that was guidance. It was not on a static balance sheet in terms of the buybacks is simply what happens at that time of the year in terms of the liquidity in the market and also a risky it's based on the level of our stock lifestyle, our stock price went up.
It might be more.
And but the guidance we have given is based on our current stock price and the liquidity expected remember that December is going to have lower liquidity than other months.
In terms of 2023 and we.
We expect to have material share repurchase, but we are not being more specific about the levels.
That's great. Thank you.
The next question is from Jeff Benjamin Goy from Deutsche Bank. Please go ahead.
Yes, hi, good morning, two questions. Please the first one on your interest rate sensitivity given the Swiss franc or switch based on all of the major driver I was wondering about the deposit beta youre assuming in the 700 million that you stated in sensitivity guidance.
Particularly thinking about deposit beta was better in the U S and Swiss deposits are still growing.
And then secondly, thank you for slide 26 on the 12% offshore.
Client cash as a method.
Client asset left in cash and another five in money market products. So I'm just wondering how this looks like.
Let's say earlier in the year.
What would need to change at all on your own.
Any major changes expected from here. Thank you.
So on the interest rate sensitivity and the better that you can expect.
In Europe . The first thing to say is that Tom <unk>.
Typically become higher.
Go up the curve and so.
In the U S. We are towards a higher point in the curve and when they are extraordinarily quickly.
What is expected in Switzerland, and in the rest of Europe is something that is much more measured and therefore, we are at a lower point in that curve and so and that should be combined also with the fact.
It is always a weighted average of our products and we do have increased like also.
The retail bank debt.
That has lowered the top products.
And then in terms of like the composition, we thought it would be helpful. Thanks sure appreciating it.
You try to think about the impact of the different.
Markets on on our invested assets I bought in GW them and in a and on and I think that those are things that don't evolve, particularly quickly.
I think it does it take for you to start.
Understood. Thank you.
The next question is from Jon Peace from Credit Suisse. Please go ahead.
Yes, Thank you and sorry to ask one more on rate sensitivity, but just looking for still a little bit of health and sizing that 2023 benefits.
For the guidance of 100 basis points higher rates will add.
$7 billion of Frank from $2 billion of the Euro cuts do you think those could be substantially offset by deposit beta of mix effects because I see consensus is basically about a $200 million uplift on the Q4 run rate.
We might come to a higher number if we use that sensitivity.
Then second question on the buyback for next year I appreciate that.
Give us a number until the full year, but just could you help us understand the process you go through in Q4 and sizing that buyback is it.
Is it backward looking look how far youll see Tijuana.
Is above your management targets and you pay that out or is it a desire to maintain a higher buffer and then it's based on a forward look on earnings with payoffs, if perhaps 100%. Thanks.
Yeah, Okay. Thank you John .
Uh huh.
Let's go into further detail the guidance is the guidance right. So.
And that's why we give it and thats, where we want to keep it as well.
Then on your questions around the 23 buyback.
Yeah.
We go through this every year looking at what is the starting capital position going into the year, what are our expectations as to making sure that we have a balance sheet to get through more challenging times, what kind of growth do we expect in the business and on the back of that how can we then manage our capital.
And yet we manage our capital to around 13% CET. One so that's the way you can think about it and whether we can kind of generate.
Yeah.
If we generate more capital and use less for our growth.
Really that will lead to a higher.
Payout or buyback.
<unk>.
So those are the components that we would look at.
As we have a highly capital generative model, we have a low capital intensive model to generate.
Our income and we have a buffer.
2% to 13% that we want to manage to.
Okay.
And maybe before we close I can just to answer a question that came earlier, which was the nine months a year on year revenue ex FX. The number is plus 2%.
Okay. Thank you.
So if any further questions I would like to thank you all for being here. This early morning as indicated.
Given the market backdrop.
We delivered.
Good quarter, a good quarter, both in terms of the sale.
Staying close to our clients and the flows that are coming through both in the wealth manager as well as the asset manager with $18 billion of net new money coming through on the asset manager you see that both on the institutional side as well as the well site.
Do provide for the right products and services and advisory to our clients in these.
While challenging circumstances, where clients do need guidance and then the other side. It shows the flexibility of our investment bank in terms of the allocation of resources to move quickly from a market that is more micro related to market is more macro driven.
And being able to profit from that as well with an increase in our FRC revenues for 64% MPC doing doing well over time, a very stable business.
Growing both on the lending side as well as on the positive side. So also there no very much client focused and client driven business.
On the back of that delivering a one 7 billion of net profit. Thank you very much and see you next quarter.
Okay.
Ladies and gentlemen, the webcast and Q&A session for analysts and investors is over you may now disconnect. Your lines. We will now take a short break and continue with media Q&A session at 945 U K 10, 45 Central European time. Thank you.
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Okay.
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Ladies and gentlemen, please hold the line the media Q&A, we'll start at 10 45 Central European time Media Representatives wishing to ask a question May now press star and one thank you.
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