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: September 1, 2023
UBS Group AG
(Registrant's Name)
Bahnhofstrasse 45, 8001 Zurich, Switzerland
(Address of principal executive office)
Commission File Number: 1-36764
UBS AG
(Registrant's Name)
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Aeschenvorstadt 1, 4051 Basel, Switzerland
(Address of principal executive offices)
Commission File Number: 1-15060
Credit Suisse AG
(Registrant's Name)
Paradeplatz 8, 8001 Zurich, Switzerland
(Address of principal executive office)
Commission File Number: 1-33434
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
☒
☐
This Form 6-K consists of the transcripts of the presentation of the Second Quarter 2023 Results of
UBS Group AG and related Q&A session, which appear immediately following this page.
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Second quarter 2023 results
31 August 2023
Speeches by
Sergio P. Ermotti
, Group Chief Executive Officer, and
Todd Tuckner
,
Group Chief Financial Officer
Including analyst Q&A session
Transcript.
Numbers for slides refer to the second quarter 2023 results presentation. Materials and a webcast
replay are available at
www.ubs.com/investors
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Sergio P. Ermotti
Slide 3 – Our strategy is unchanged and is accelerated by the acquisition of Credit Suisse
Thank you Sarah, and good morning everyone. I hope you had a relaxing summer break. For us, these past eight
weeks were intense as we were busy writing the next chapter in UBS’s history. This is the first-ever acquisition
involving two global systemically important banks. It was announced only five months ago and we closed it less
than 100 days ago. This would not have been possible without extraordinary effort and dedication from my
colleagues across both organizations. It also required extensive cooperation from the Swiss government and
regulators in Switzerland and around the world.
We are swiftly executing on our integration plans, already achieving a number of important milestones. We
established a target operating model, created a dedicated integration office, and rolled out responsibilities with
management appointments up to three levels below the Group Executive Board, just to name a few. We are also
making progress on our cost -saving and de-risking plans and resolving some legacy matters for both firms.
Following a detailed analysis, we terminated and handed back all Swiss government support a few weeks ago.
Lastly, we decided to fully integrate the Swiss business of Credit Suisse after a thorough strategic review.
The thing I am proudest about is that clients have rewarded our unwavering commitment with extended trust.
Thanks to their restored belief in the combined firm we were able to swiftly stabilize the Credit Suisse core – its
wealth, asset management, and Swiss Bank franchises. We are happy to see markets recognizing our ongoing
work.
Slide 4 – Enhancing client franchises and increasing scale
Our strategy is unchanged, and the Credit Suisse acquisition will act as an accelerant to our plans. We will
strengthen our position as the only truly global wealth manager, and as the leading Swiss universal bank, with
scaled-up asset management and a focused investment bank.
With a highly complementary footprint, we will reinforce our position in key growth markets, including the
Americas and APAC, and build on our leadership in Switzerland and EMEA. We will relentlessly focus on clients
and continuously improve and expand our services and products. With 5.5 trillion dollars in assets across the
combined firm, the transaction adds scale that will lead to increased efficiencies. This will allow us to better focus
our resources, and target investments that provide superior levels of client service.
Slide 5 – Improving our business mix, with unchanged capital allocation discipline
We will achieve our strategy while remaining disciplined in our resource management across the entire firm. The
IB consuming no more than 25% of the Group’s risk-weighted assets and the rundown of the Non-core and
Legacy portfolio are just two of the more visible examples of our approach. In essence, we will repeat what this
bank successfully accomplished during the last decade.
Slide 6 – Update on integration – divider
March 19. Since then, and especially after we closed the acquisition in June, we conducted an in-depth analysis
that has only confirmed the necessity of the decisive actions taken over that weekend.
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It was not just a matter of liquidity drying up. Credit Suisse’s business model and business mix was deeply flawed
and its reputation severely damaged. With its structural lack of underlying profitability, unsustainable capital
allocation, and negative revenue and costs prospects, the bank was no longer in a position to continue on its
own. This is clearly visible from the year-to-date losses Credit Suisse reported today, a culmination of the bank’s
two loss-making years.
Thanks to our financial and balance sheet strength, UBS was in a position to answer a rescue call from the Swiss
government, helping to stabilize the financial system. Importantly, the transaction preserves the best of Credit
Suisse’s excellent client relationships, people, and industry-leading products that in other plausible scenarios
would have been weakened or lost. Unlocking Credit Suisse’s strengths as part of UBS, will allow us to build
something of a more enduring value for all stakeholders. This combination will reinforce our status as a premier
global franchise – one that our home market, Switzerland, can be proud of. We are humbled by this task, and
the responsibility entrusted to us.
But let me make one thing absolutely clear: Our ability to stabilize Credit Suisse, and return the government
guarantees in timely fashion, should not take away from the gravity of the situation we inherited. Nor should it
diminish the scope and scale of the task ahead.
Slide 7 – Diligent approach to identify and asses strategic options for Credit Suisse (Schweiz)
That being said, let me walk you through how we came to our decision on the future of Credit Suisse (Schweiz).
As I promised when I returned as CEO a few months ago, the decision would be driven by facts, not emotions,
and mindful of the extraordinary circumstances of the transaction.
We conducted an extremely thorough review involving teams comprised of some of the best people across both
firms, with support from external experts where needed. Our analysis focused on four key aspects that, for us,
would determine the long-term viability of the business. We examined what the decision would entail for our
clients, shareholders, and employees. And we gave special consideration to financial and funding sustainability.
We started with a broad spectrum of possibilities, ranging from IPO, sale, partial or full integration to a spinoff,
and even a dual-brand strategy. Eventually, based on our criteria, we narrowed down our selection to the two
best options: a full integration or a spin-off of a focused perimeter, which would exclude segments requiring
global capabilities.
The final outcome was crystal clear: Full integration is by far the best choice.
Slide 8 – Integration of Credit Suisse (Schweiz) is the best path forward
It is not just that the financial merits of integration are greater. It is also the best way forward for our clients, for
whom the industry-leading offering will improve and broaden as we combine products and capabilities from both
firms. The alternative would have been a bleak one, considering the current situation, combined with the
necessity to carve out most of its global capabilities. Even a more focused spin-off of Credit Suisse Schweiz would
fail to meet the needs of many of its corporate clients, as well as the entrepreneurs it considers core.
At the same time, separation from the Group would entail a costly, risky and lengthy carveout of technology
platforms, causing uncertainty for clients and employees for years to come. Moreover, our analysis revealed a
substantial dependency of the Swiss subsidiary on financial resources and operational support from the parent. As
a result, it would have existed as a fragile entity struggling to close its funding gap, unable to compete effectively
and failing to deliver sustainable returns. We believe this would not have been an acceptable proposition for
clients, employees – and very likely - regulators.
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By contrast, being a part of UBS ensures it will have continuous backing from one of the most stable and trusted
global financial institutions. The strength of UBS will underpin the franchise and provide access to efficient
funding, as demonstrated by our ability to return all extraordinary government and central bank facilities.
We take our social responsibilities very seriously. This is why I have repeatedly emphasized the fact that
employment-related considerations must be a key decision-making factor in our evaluation. We have analyzed
their impact in both absolute terms and in relation to the Swiss job market. Every lost job is painful for us.
Unfortunately, in this situation, cuts were unavoidable, regardless of the selected scenario. We are committed to
minimizing the impact on employees by treating them fairly, providing them with financial support, outplacement
services, and retraining opportunities. Our aim here is to enable those affected to take advantage of a quite-
healthy Swiss job market, where more open positions in finance are available than there are job seekers.
Let me emphasize: the vast majority of job reductions will come from natural attrition, retirements and internal
mobility. Around 1,000 redundancies will result from the integration of Credit Suisse Schweiz. These will be
spread over a couple of years, starting in late 2024. Importantly, in the alternative spin-off scenario, restructuring
would also have been necessary, and resulted in about 600 redundancies. In addition, the necessity to profoundly
restructure other parts of Credit Suisse is expected to lead to about 2,000 additional redundancies in Switzerland
over the next couple of years.
After weighing all of the above factors, we came to the view that a full integration is the best way forward.
Slide 9 – Unwavering commitment to our clients, employees and the Swiss economy
Our decision reinforces our commitment to clients, employees, and the Swiss economy.
Our goal is to make the transition for clients as smooth as possible. The two Swiss ringfenced entities will operate
separately until their planned legal integration in 2024. Credit Suisse brand and operations will remain separate
during that time. We will gradually migrate clients onto our systems and expect to finish this process in 2025.
Given this, nothing will change for clients in the foreseeable future and they do not have to take any immediate
action. We will continue to provide the premier levels of service that they have come to expect. And with time
they will begin to see the further benefits of the combined franchise.
As we progress in the integration, we remain fully committed to our personal, private, institutional and corporate
clients. In terms of lending, thanks to our even -stronger capital base, our intention is to keep the combined
exposure unchanged while maintaining our risk discipline. We are sensitive to the important role both firms play in
the lives of our employees and their communities. We want to remain an employer of choice in Switzerland,
offering attractive career opportunities. Last but not least, as we combine, we will honor all agreed sponsorships
of civic, sporting and cultural activities in Switzerland at least until the end of 2025.
I have made it abundantly clear to our colleagues that they must not be distracted by the integration. We cannot
take our eyes off our vision and must remain focused on client needs. After all, competition in the Swiss market
remains robust. The cantonal banks in aggregate will continue to have the highest market shares in all relevant
personal and commercial banking products. And our branch network, even after the merger, is the third-biggest.
We welcome the challenge. Competition is what makes all of us better, and what makes the Swiss financial
system stronger.
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Slide 10 – Stabilized flows and focusing on client win-back opportunity
Given the events leading up to the acquisition, stabilizing the Credit Suisse client franchises globally has been our
most immediate priority. Since closing in June, we have won back clients’ confidence, as evidenced by positive
asset flows and strong engagement across Wealth Management and the Swiss business.
We saw formidable momentum in deposits, with 23 billion dollars in inflows for the quarter, 18 billion of which
came into Credit Suisse’s Wealth Management and Swiss Bank. Meanwhile, UBS wealth management has
delivered the highest second-quarter net new money performance in over a decade.
We are pleased to share that this positive trend has carried on into July and August. While the quarter is not over
yet, so far we have attracted net new assets of 8 billion for the combined wealth management businesses.
It is encouraging and rewarding to see the franchise stabilize so quickly. Winning back the more than 200 billion
dollars of client assets that left Credit Suisse over the past year won’t be easy, but recapturing as much as we can
is one of our top priorities.
Slide 11 – Non-strategic assets and businesses to be exited through Non -Core and Legacy
Let’s move to assets that we have designated as non-core. First, let me briefly touch on the 9 billion RWAs that
will be included in the combined Investment Bank.
These assets were selected through a disciplined process designed to enhance our Global Banking and derivatives
operations. The transferred businesses are expected to be accretive from next year. They will help drive
economies of scale while adding only 13% to the investment bank’s current non op-risk RWAs.
The remaining 17 billion of Credit Suisse’s investment bank, as you can see from the chart, will be transferred to
the newly-formed Non-core and Legacy unit. This will also include Credit Suisse’s entire Capital Release Unit as
well as selected assets from the combined wealth and asset management businesses that are not aligned with our
risk appetite or strategy.
Overall, the NCL will comprise of 224 billion in LRD, with a significant portion in high-quality and liquid assets, and
55 billion in risk weighted assets excluding op-risk RWAs.
With the perimeter largely defined, we are already executing on our strategy to exit these assets in a timely and
efficient manner. We made a good start in the second quarter, reducing positions representing a total of 9 billion
in RWA. Around half of those came from sales that we actively pursued.
Slide 12 – Non-core and legacy rundown to drive lower costs and efficient capital release
As I mentioned before, this is not the first time our organization has managed a successful run-down of non-core
assets. Our previous experience is a big part of why we are confident in our ultimate success.
A clear priority for us is to take out a substantial part of the operating costs associated with this unit. I will touch
on that in a minute.
Thanks to our strong capital position, and markdowns we took as part of the PPA adjustments, we have
substantial flexibility in order to optimize the outcome. These are not distressed assets, so we can maintain
positions if they preserve value. Our decisions whether to do so will be based on economic profitability, taking
into account funding, operating and capital costs of the portfolios. On those positions we do decide to exit, we
will move at pace, acting fairly and protecting our clients and counterparties.
6
The natural run-off profile is a steep one. As you can see from the chart, we will have a 50%, or 27 billion,
reduction in non op-risk RWAs by 2026 and a similar reduction in LRD. But let me assure you that our proactive
approach to accelerate the wind-down will continue.
Slide 13 – Executing on plans to achieve greater than 10bn gross cost reductions by year-end 2026
Now let’s turn to cost reductions, a key element of returning to profitability and creating sustainable value across
the combined firm. First, as we speak, we are actively addressing the need for deep restructuring at Credit Suisse.
money. Secondly, additional efforts are required to generate synergies across the combined businesses.
We aim to take out over 10 billion dollars in gross expenses from the combined franchise, based on full-year 2022
cost base. Around half of that will come from restructuring the investment bank and running down non-core
assets. The other half will come from actions across the rest of our operations. There is meaningful duplication
that can be removed, thousands of applications and IT platforms to be decommissioned, and hundreds of legal
entities to be merged or closed to make us more efficient and effective.
Let me give you an example. Of Credit Suisse’s current 3,000+ IT applications only around 300 will be integrated
into UBS infrastructure, contributing to our combined future business model.
Importantly, we will continue investing to make our platforms and processes more resilient and support our
existing, and future, growth ambitions. We will also absorb some further inflation. All told, we aim to bring the
Group’s underlying cost/income ratio exit rate below 70% in 2026.
Slide 14 – We aim to substantially complete integration for the Group by year-end 2026
We are two and a half months into one of the biggest and most complex bank mergers in history. We are
executing our plans at pace and wasting no time in delivering value for our all our stakeholders, including
shareholders.
In the next four to six months our focus will be on restoring underlying profitability, while progressing on other
areas, including business transformation, client migration and simplification of our combined legal entity structure.
On the latter, a key milestone will be the merger of our parent operating entities UBS AG and Credit Suisse AG.
This step, planned for 2024, will allow us to simplify our structure and operating model, optimize capital and
liquidity within the Group, and will support achieving our cost-savings ambitions.
We expect to substantially complete our integration program by 2026.
Slide 15 – Working towards ~15% RoCET1
A key pillar of our strategy is to maintain a balance sheet for all seasons - one that supports our capital-generative
business and allows us to offer attractive capital returns. We expect to operate at around 14% CET1 capital ratio
over the medium term. And as we exit 2026, we aim to achieve an underlying return on CET1 of around 15%.
As you know, we have suspended share repurchases for the time being. But we remain committed to growing our
dividend and returning excess capital to shareholders through buybacks. We will update you on our plans in this
regard with the fourth-quarter results.
With that, let me hand over to Todd.
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Todd Tuckner
Slide 17 – UBS Group 2Q23 results
Thank you, Sergio. Good morning everyone – it is a privilege to be with you today as Group CFO, especially
at this watershed moment for UBS.
Since my appointment, my focus has been on the financial consolidation of the two firms, progressing the
work done on transaction adjustments, optimizing our liquidity and funding position, firming up our cost
savings and enhancing financial reporting controls for the expanded group.
Regardless of whether staff come from Credit Suisse or UBS, I’ve been extremely impressed with the
dedication of the finance team. I’m proud of what we as a unit have already been able to accomplish, and
we, like the entire firm, continue to execute at pace.
We recognize that this is a complex deal, but our aim is to be clear and forthcoming in explaining the
financial implications of our actions during this critical period and beyond.
Today, I’ll cover our second quarter operating performance, the impact of the merger on our balance sheet
and capital as of day 1 and, finally, our integration plan and outlook.
Let’s start with the quarter on slide 17. I’ll refer to UBS Group AG’s consolidated results, which this quarter
include one month of Credit Suisse’s operating performance, presented under IFRS and in US dollars.
On a reported basis, the second quarter profit was 29 billion, both pre- and post-tax. These results were
largely driven by the net impact from items related to the acquisition, principally negative goodwill of
28.9 billion and integration-related expenses and acquisition costs. Excluding these items, the Group pre-tax
profit was 1.1 billion, of which 2.0 billion from the UBS sub-group, and negative 0.8 billion from the Credit
Suisse sub-group.
Slide 18 – Negative goodwill and overview of purchase price allocation adjustments
Turning to slide 18. The negative goodwill of 28.9 billion is calculated as the difference between the
consideration UBS paid and the fair value of the acquired net assets after taking into account the various PPA
adjustments of negative 25 billion.
The roughly 6 billion difference between the negative goodwill reported today and the amount included in
the Form F4 registration statement just prior to closing is principally explained by two factors. First, Credit
Suisse generated operating losses over the first 5 months of 2023 that were not captured in the F4, which
was prepared as if the transaction occurred on December 31, 2022. Second, we applied additional net
negative PPA adjustments to Credit Suisse’s financial assets and liabilities, reflecting a more detailed fair value
assessment post-closing.
The total net PPA adjustments of negative 25 billion consist primarily of marks of negative 14.7 billion in
connection with financial assets and liabilities. This includes negative 12.4 billion on mainly fixed-rate accrual
assets and liabilities, of which around 8 and half billion relates to our core businesses and around 4 billion to
Non-core and Legacy. In addition, we made negative 2.3 billion of further necessary adjustments to fair value
positions, mostly related to Non-core and Legacy.
The negative 8 and a half billion of marks on core-business accrual financial instruments include, for example,
PPA adjustments on the Swiss mortgage book, which were almost entirely interest rate driven.
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The majority of the accrual-basis positions are expected to mature within the next 3 to 4 years and, if held to
maturity, will pull to par.
Of the total marks on accrual positions, 6 billion pre-tax, or 5 billion net of tax, are CET1 capital-neutral as
FINMA has granted us transitional relief, which mainly applies to Swiss mortgages. The transitional treatment
is subject to linear amortization concluding by June 30, 2027.
The negative marks of 2.3 billion on fair value assets and liabilities that I mentioned earlier reflect UBS’s
assessment of the complexity, liquidity and model risk uncertainties in the book, as well as the relevant
markets for potential strategic exits.
We also made PPA adjustments of negative 4.5 billion to capture UBS’s determination of Credit Suisse’s
provisions and contingent liabilities related to litigation, regulatory and similar matters. This includes 1.5
billion of incremental provisions Credit Suisse took in the second quarter.
Other net PPA adjustments, totaling to negative 5 and a half billion, largely relate to GAAP differences
associated with pension accounting, but also goodwill and intangibles, and fair value marks on non-financial
assets and liabilities, including software and real estate.
Of the total negative 25 billion of PPA adjustments, negative 17 billion is CET1 capital-relevant, with the
balance relating to the 5 billion regulatory waiver I mentioned earlier, and other items that are filtered out of
CET1 capital, such as pension accounting differences, goodwill and intangibles.
Overall, we believe the negative goodwill, including the PPA adjustments therein – in addition to
underpinning almost 240 billion of acquired RWA - provides us with sufficient capacity to absorb the costs to
achieve our two key saving objectives: first, an efficient wind-down of the non-core businesses and associated
overhead we acquired, and second, positive operating leverage and synergies in our core franchises. All while
remaining capital-generative over the integration timeline.
Slide 19 – The acquisition strengthens the foundation of the combined bank
We are highly confident that we can successfully integrate Credit Suisse, enhancing our business model and
operating metrics, while continuing to ensure we maintain world class capital ratios and a balance sheet for
all seasons.
On page 19, we illustrate how the transaction strengthens key financial measures from day 1, offering us a
highly attractive starting point as we commence this journey. Since the acquisition, our capital position is even
stronger with almost 200 billion total loss absorbing capacity, and a CET1 capital ratio of 14.4%.
Additionally, our tangible book value per share is up 49% quarter on quarter and, today, we manage over 5
and a half trillion dollars of invested assets with a unique and meaningful presence in all the major markets
across the globe.
Slide 20 – Our balance sheet for all seasons remains the foundation of our success
Remaining on capital on slide 20. The strength of our balance sheet is the foundation of our success and the
reason why we were able to restore financial stability and client trust in such a short amount of time.
As of the end of June, as just mentioned, our CET1 capital ratio was 14.4% and our CET1 leverage ratio was
4.8%.
Included in our capital ratio this quarter are the impacts from the closing of the Credit Suisse acquisition,
including a 10 billion operational risk RWA reduction from diversification benefits and a combined lower
forward-looking risk profile.
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Looking through to the end of the year, we expect our CET1 capital ratio to remain around 14%, as the
benefit of RWA reductions, improvements in our underlying profitability, mainly from cost saves, and CET1
capital-relevant pull-to-par effects from the PPA adjustments are expected to largely, but not fully, offset
integration-related expenses.
We also expect to maintain a CET1 capital ratio of around 14% and a CET1 leverage ratio or more than 4%
over the medium-term.
You have often heard us referring to our balance sheet for all seasons and our capital-generative operating
model that allows us to service clients and invest in the business through the cycle. It’s how we’ve operated
over the last decade, and it’s how we intend to continue to operate going forward. So rest assured,
maintaining a balance sheet for all seasons will remain among our very top priorities.
Slide 21 – Prudent management of liquidity and funding
On liquidity and funding on slide 21, we closed the quarter with an average liquidity coverage ratio of 175%,
well above our prior quarter level, and a net stable funding ratio of 118%. The liquidity coverage ratio
increase largely reflects the elevated HQLA levels at Credit Suisse, including the effect of the usage of the
Swiss National Bank facilities.
As Sergio highlighted, positive net new deposits in the past few months enabled us to repay ELA+ and
terminate the Public Liquidity Backstop facility, as announced earlier this month. We expect to continue
attracting net new deposits, and as of this week we’ve already seen, in the third quarter, 13 billion of positive
net new deposit flows in our combined wealth management and Swiss franchises. While this will help us
narrow the inherited funding gap and continue to manage our liquidity coverage ratio at prudent levels, we
expect to resume execution of our funding plans shortly.
In addition to maintaining significant liquidity and funding buffers on a consolidated basis, we’re actively
managing the allocation of financial resources among our significant legal entities, which also have
standalone funding requirements and will continue to operate while we progress towards our target legal
entity structure.
We’re working towards merging Credit Suisse AG into UBS AG in 2024, as this is a critical step to removing
resource allocation bottlenecks and enabling the realization of business and operational efficiencies.
Slide 22 – 2Q23 UBS business divisions and Group Functions (IFRS) – excl. Credit Suisse
Now onto slide 22. Excluding Credit Suisse’s performance in June, the effects of the acquisition I mentioned
earlier, and a gain on sale of 848 million in Asset Management last year, UBS’s pre-tax profit in the quarter
was 2.0 billion, up 12% year-over-year.
Slide 23 – Global Wealth Management
Before turning to the UBS sub-group business divisions starting on page 23, let me first point out that for the
second quarter, the negative goodwill as well as a substantial portion of integration-related expenses have
been retained and reported in Group Functions. Starting with the third quarter, we intend to consolidate the
reporting of our business divisions across the UBS and Credit Suisse sub-groups, and we’ll report integration-
related expenses in the respective combined segments.
All references to figures are in US dollars and comparisons are year-over-year, unless stated otherwise.
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In Global Wealth Management, we delivered net new money of 16 billion, the strongest second quarter in
over a decade, with inflows across Switzerland, EMEA and APAC, and despite 5 billion in seasonal tax
payments in the US.
We also delivered net new fee generating assets of 13 billion, or an annualized growth rate of 4% with
positive flows across all regions, as well as net new deposits of 5 billion.
These strong inflows across net new money, fee-generating assets and deposits demonstrate our continuous
focus on active client engagement and the trust our clients place in us. This was especially important during a
quarter where the macro backdrop and developments with Credit Suisse placed a premium on our investment
advice and the stability of our GWM franchise.
Profit before tax was 1.1 billion, down 4% despite strong growth in EMEA and Switzerland of 15% and 9%,
respectively. Positive top-line contributions from all regions outside of Americas supported a 1% revenue
increase, which was more than offset by higher expenses.
In the Americas, revenues were down 4% mainly as net interest income reflected continued rotation into
higher yielding deposits and investments from transactional and sweep deposit accounts. Although we
expect NII in the Americas to continue to tick-down sequentially from ongoing cash sorting and deleveraging
in the current rates environment, we nevertheless continue to see the US market as a strategic priority for us,
and hence we continue to invest in the business for future growth. As a result, we expect our pre-tax margin
in the Americas to be low double-digit to mid-teens over the near-term.
Onto total GWM revenues. Net interest income was up 14% year-over-year, and down 3% sequentially, the
latter reflecting mix shifts and lower deposit and loan balances, partly offset by higher deposit margins.
Recurring net fee income decreased 3% due to negative market performance while positive inflows were
offset by clients’ continued repositioning into lower margin solutions. As a reminder, we bill based on daily
balances in the Americas and on month -end balances everywhere else. As such, second quarter revenues did
not fully reflect June’s market rally, which we’re seeing benefit the third quarter.
Transaction -based income decreased 6%, impacted by investor uncertainty, particularly in Americas and
APAC. However, towards the end of the second quarter and into the third, we’re seeing a pick-up in both
client sentiment and transactional momentum especially in APAC.
Operating expenses ex-litigation, integration -related expenses and FX were up 3% driven by increases in
technology and personnel expenses.
Slide 24 – Personal & Corporate Banking (CHF)
Turning to Personal & Corporate Banking on slide 24. We delivered another record quarter excluding past
one-off gains. Profit before tax was up 54% to 612 million Swiss francs. Revenues increased 24%, with
increases across all revenue lines, highlighting continued momentum in the business. Net interest income
increased by 45% year on year and 12% quarter-on-quarter. Sequentially, we continued to see loan growth,
while the deposit base remained roughly stable. Costs were up 9%, driven by continued tech investments and
higher personnel expenses. The cost-to-income ratio was 51%, a 7 percentage-point improvement year-on-
year, demonstrating strong positive operating leverage.
We saw strong momentum with 10% annualized growth in net new investment products and almost
6 thousand net new clients, reflecting the trust our clients continue to place in us.
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Slide 25 – Asset Management
Moving to slide 25. In Asset Management the profit before tax was 90 million.
Excluding last year’s gain on sale, total revenues decreased 5%, with lower net management fees, driven by
market headwinds, asset mix, as well as lower performance fees. These headwinds were partially offset by
1% lower costs.
Net new money in the quarter was strong at 17 billion, a 6% annualized growth rate. Net new money
excluding money markets and associates was 19.5 billion, with positive momentum in SMAs and alternatives.
Slide 26 – Investment Bank
Turning to slide 26. In the Investment Bank the profit before tax was 139 million.
The operating environment for the Investment Bank’s trading businesses was defined by significantly lower
equity volatility levels compared to the prior-year period.
Within Global Markets, this resulted in a meaningful decline in client activity levels across both Equities and
FRC, where revenues of 1.5 billion were down 11%, broadly consistent with our peer group.
Our Financing business continued to deliver strong results, reporting its best second-quarter and best first-half
on record. This demonstrates the resilience of our balanced portfolio of risk-efficient businesses, as we
continue to invest in capabilities that are critical to our clients.
Global Banking revenues of 371 million were down 2% as the second quarter saw the global fee pool hit its
lowest quarterly level since 2012. In the second quarter we significantly outperformed the fee pool in EMEA
and gained share in global M&A.
Operating expenses were up 2%, predominantly on higher tech investments offsetting lower provisions for
litigation, regulatory and similar matters.
Slide 27 – 2Q23 Credit Suisse AG reported loss of (8.9bn), (4.3bn) excluding acquisition related effects;
(2.1bn) adjusted loss (CHF, US GAAP)
On slide 27, I now turn to Credit Suisse AG’s full second quarter results, which were separately published
earlier today. Credit Suisse AG’s reported pre-tax loss for the second quarter was 8.9 billion Swiss francs.
This result includes several large items, including 2.2 billion in adjustments to fair value marks, 1.8 billion in
software write-downs, 1.3 billion in additional litigation provisions, and 1.0 billion for a goodwill impairment.
in the quarter, the adjusted operating loss was 2.1 billion Swiss francs.
Not included in this figure are the results of a few legal entities that fall outside of Credit Suisse AG’s
consolidation scope. Including those entities, the Credit Suisse sub-group’s pro -forma second quarter
adjusted operating loss was 2.0 billion Swiss francs. In discussing the Credit Suisse sub-group performance in
the second quarter, I’ll focus on this 2-billion Swiss franc adjusted loss as it better informs the starting point
for the group in combination with UBS’s quarterly underlying performance.
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Slide 28– Credit Suisse adjusted 2Q23 results (CHF, US GAAP)
On slide 28, Credit Suisse’s quarterly adjusted pre-tax loss was largely driven by operating losses in the Credit
Suisse Investment Bank and the Capital Release Unit, as well as elevated funding costs in the Credit Suisse
Corporate Center.
Sequentially, revenues declined by 38%, driven by Credit Suisse’s Investment Bank, down 78%, where the
sharp drop in revenues was due to little-to-no new activity in the context of expected exits following the
acquisition. Second quarter revenues also reflected elevated funding costs, primarily from the Swiss National
Bank facilities.
Going forward, we’ll focus on two key priorities in relation to Credit Suisse’s Investment Bank and Capital
Release Unit. First, rebuild activity and profitability levels of the businesses we decided to retain as part of our
core Investment Bank. And second, actively manage the wind-down of businesses and positions that are not
aligned to our strategy. These include those already in the Credit Suisse Capital Release Unit and Investment
Bank not retained as core, and will be managed and reported within our Non-Core and Legacy segment
beginning in the third quarter.
Moreover, as the wind down is executed, we’ll decisively take out all costs in relation to resources, technology
and real estate that are not needed to support either what is retained in our core Investment Bank or what is
strictly required to efficiently wind-down businesses and positions managed by our Non-core and Legacy
team.
In contrast to Credit Suisse’s Investment Bank and Capital Release Unit, we saw relative stability across Credit
Suisse’s Wealth Management, Swiss Bank and Asset Management segments.
In Credit Suisse Wealth Management, we’ve seen a stabilization of net new assets, trending from substantial
outflows in April to net inflows in June, with 14 billion dollars of net new deposits in the quarter. We remain
focused on introducing Credit Suisse’s clients to the unrivaled value proposition of the combined firm to
counterbalance any headwinds to our flows from lag effects stemming from past or future attrition of Credit
Suisse relationship managers. In addition to clear and decisive actions to retain client assets, we also
implemented client advisor incentive programs with the clear objective to “win back” and sustainably retain
client assets. Quarter to date, these actions have helped us to attract net new deposits of 10 billion dollars
and positive net new assets in the Credit Suisse wealth management franchise.
Credit Suisse’s adjusted operating expenses were down 10% sequentially, reflecting actions initiated before
and after the merger announcement, as well as voluntary attrition of employees. As of the end of the second
quarter, headcount was down by over 8,000 compared to the end of 2022, split roughly equally between
internal and external staff.
Slide 29 – Driving positive underlying profitability and maintaining ~14% CET1 capital ratio
I now turn to slide 29. On an illustrative and underlying basis, the sum of the UBS sub-group pre-tax profit of
2.0 billion, and the Credit Suisse sub-group pre-tax loss of 2.2 billion, after translation to US dollars, equals a
combined pro forma Group operating loss of around negative 0.3 billion. You can consider this indicative
level as a useful starting point to contextualize the trajectory of our underlying profitability going forward,
and assess the steps we are taking to achieve our ambitions.
First and foremost, we’re executing on our cost reduction plans at pace and we expect positive combined
underlying profits in the second half of 2023. We expect to deliver underlying exit rate cost savings of over 3
billion by the end of the year - which will benefit our 2024 results - and to incur a broadly similar amount of
integration-related expenses in 2H23. While neutral to our underlying performance, I would note that such
integration-related expenses will be partly offset by pull-to-par effects of over 1 and a half billion.
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Second, asset and deposit retention and win-back initiatives will continue to support the positive momentum
across our wealth management businesses. In particular we expect to see positive underlying contribution
from the Credit Suisse wealth management franchise by the first half of 2024. We will apply this same
systematic approach to client and asset retention and win-back across all of our core franchises, especially
following today’s announcement in connection with the Swiss businesses.
Third, our second quarter 2023 pro forma results include 550 million of funding costs related to the Swiss
National Bank facilities that Credit Suisse reported in its Corporate Center. The repayment of these facilities
will lead to materially lower funding costs in the third quarter and further benefits in the fourth quarter for
the combined Group. Continuing on the NII topic, sequentially for 3Q23, we expect a low single-digit
percentage decline in our combined wealth management businesses, with positive contribution from the
Credit Suisse franchise, and a mid -single-digit percentage decline in our Swiss businesses. This excludes the
pull to par effects I mentioned earlier.
These elements, in combination with disciplined resource management and a focused execution mindset
across the leadership team, give us confidence in our ability to deliver a successful integration, starting with
approaching break-even in the third quarter and returning to positive underlying profitability before the end
of the year.
With that I’ll hand back to Sergio for his closing remarks.
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Sergio P. Ermotti – closing remarks
Slide 29 – Key messages
Thank you, Todd. As we speak, the geopolitical and macroeconomic outlook remains volatile and difficult to
predict. Of course, major developments on this front will impact our business in the short term. As always, our
first priority is to stay close to clients and help them manage the challenges and opportunities presented by this
uncertain environment. For us, this is business as usual and we remain focused on this priority.
At the same time, we will also execute on our integration plans with determination and pace. That will unlock
significant economies of scale allowing us to fund future investments as we continue to pursue growth
opportunities. We are well aware of the additional trust and responsibility that accompany this transaction. We
will not betray that trust, remaining faithful to our strong culture and conservative risk management.
I am excited about the opportunities that lie ahead of us. I strongly believe UBS will emerge as a stronger
global financial institution, one of even greater value to its clients, while remaining safe and delivering
superior returns.
With that let’s get started with questions.
15
Analyst Q&A (CEO and CFO)
Jeremy Sigee, Exane BNP Paribas
Good morning. Thank you very much for all the information. There's a lot to get through and a lot of
questions. I'll just ask two things. One is, could you talk about the Swiss integration, which obviously takes
time and I think you said it's going to legally close in 2024 and then physically integrate in 2025. I just
wondered, you know, what determines that timeframe and how you manage? How you intend to keep the
businesses stable whilst they're in that slight sort of limbo period. So that's my first question.
And the second question is about sort of capital stack. The 14% CET1 target I imagine it implies that you're
going to reissue AT1 and rebuild the AT1 part of your capital stack. And I saw a headline the other day that
you might even do that this autumn. I just wondered if you could comment on that aspect, your intentions in
terms of issuing AT1. Thank you.
Sergio P. Ermotti
Thank you, Jeremy. So, well, first of all, on the integration, of course, you know, now that we go through, as
I mentioned, it's very important to understand the sequence of how we're going to go through the merger of
the different legal entities. You know, we, as I mentioned before, our intention is to merge the two parent
company, UBS AG and Credit Suisse AG. And as a follow-through different entities underneath will go
through the same process. So, we need to optimize the timing from different aspects. And last but not least,
also one of regulatory approvals. So, we are starting now the process to do that in terms of the Swiss
business.
You know, the way we will manage that is by, as I mentioned, first of all, assuring that all people employed in
the Swiss businesses at UBS and Credit Suisse will not be subject to any redundancies until the end of 2024.
So, what's the most important message is to clients, that nothing changes for them and our view is to make it
very smooth for clients to go through the transition.
And so once we go through this kind of legal process and regulatory process of merging the two entities, at
the same time, we are also tackling the IT migration, the operational migration. And this is something that
will only be completed early on in 2025. So, what we, the message here is a balance between showing the
way forward to our people, to clients, but without rush and in a stable manner. So that people you, our
clients continue to be served in the way they expect to be served.
In terms of the CET1 target, well, of course, AT1 continues to be an important element of our capital stack
and strategy. I will not comment on speculations. We are watching the market carefully, we will assess the
timing and the need of tapping the markets when appropriate. But, yes of course we are looking at the AT1
markets and we will make our consideration when appropriate.
Alastair Ryan, Bank of America Merrill Lynch
Yes. Thank you. It's Alastair, BofA. Sergio, good morning. Great to have clarity on the strategy and obviously
the market is delighted as you are that the flows have come back. Just then on operating costs. Very clear
ambitions and it looks like you're bringing forward a little 2027 to 2026 when you've landed everything. But
just given the size of the operating costs in the old Credit Suisse investment bank and non-core, can you give
us any sense about how quickly you can go there? So the quite a large restructuring charge, integration
charge in the second half, but does that cost number move out quickly so that you normalize profitability or is
there still quite a long, long tail to the cost in that part of the business? It's just, you know, IB classic, the
revenues have gone, the costs are still lingering and how quickly they go? Thank you.
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Todd Tuckner
Hi, Alastair. Yeah. In terms of the speed at which we expect to take out cost. As Sergio and I said, we've been
operating at pace in terms of the cost takeout which is among our top priorities. In terms of in particular
restructuring the parts of Credit Suisse that need immediate attention and restructuring. And so you see how
we're making very strong progress out of the gate in terms of the cost takeout through the second half of
2023 and the cost to achieve those cost takeout as well.
We've obviously modeled to get to the targets that – or the landing zones that we described earlier in terms
of returns and the cost-to-income ratio at the end of 2026. But as you say, the costs do have a long tail in
some cases, and that's because of the complexity of the operation that we have to unpack. Because you
have significant infrastructure and technology; you have a very large array of legal entities, over a thousand
legal entities, that have to be addressed.
And just back one proof point on the software components, there are 3,000 applications and the work that
our team has done suggests that we will only integrate 300 into UBS. That takes time. And so, yes, there is a
long tail, but you can count on us to operate quickly.
The last thing I would say is in terms of clarity on a sense of as those things hit through, because we give a
degree of clarity through the second half of the year and we give sort of that landing zone, we will come
back with further clarity once we do the business planning process in the second half of the year. ,And that
will be with our fourth quarter earnings in early February.
Sergio P. Ermotti
And I would probably complement Todd’s observation. Because, it is very important that de facto the vast
majority of the assets are in non-core and legacy are supported by the Credit Suisse IB platform. So, as we
progress in winding down the, call it, core day-to-day operation from the front office stand point of view.
Whatever is left is going to be legacy infrastructure, IB infrastructure, that is only there for non-core. And so
you can see out then this will be a very important element in determining how quickly we get rid of non-core
assets. Because as a consequence of that, we accelerate the winding down of this operation. But I think that's
exactly what we are working on and we will give you more detail early on next year when we present our Q4
results and our three year plan.
Chris Hallam, Goldman Sachs
Good morning, everybody. And thanks for taking my questions. Just two for me. First, in Wealth
Management, you've talked about now essentially being at scale in every growth market globally. But in
tangible terms, what does that enhanced scale enable you to do that perhaps you weren't able to do
previously? And have you seen any proactive response from competitors in reaction to that enhanced scale?
That's my first question.
And then second, looking at the banking business in Switzerland. Now the dust has settled, does all the
volatility we saw earlier in the year changed at all how you think strategically about running the combined
Swiss bank be it in terms of capital, funding, liquidity, etc.? I guess just sort of simply has your risk appetite
changed in Switzerland?
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Sergio P. Ermotti
Thank you. So, , look, in terms of scale, of course, there is an economy of scale. So, being able to leverage
UBS's IT platform as we onboard all the assets. It's a huge advantage because we have, call it, marginal costs
effects. But also when you look at the geographic footprint of the two operations, they are extremely
complementary in some areas by relationships, but also in geographical terms, i.e. for example, in Brazil, right.
So, we had a we had a lot of operation, Credit Suisse is much stronger, we now create a very important
player. In Asia we've really reinforced our position and both in North Asia and Southeast Asia. I think that in
Switzerland its quite clear, And also across Europe where there are different markets where you know ideally
it's a very fragmented market in general, wealth management, particularly in Europe. So there, we create
economies of scales and things that we would have not been able to fund from our organic standpoint of
view. So, it's very important.
As I mentioned before also Credit Suisse across the board, in asset management, in wealth management
brings capabilities and excellent products that can be then leveraged into our, into the UBS client franchise.
And we've seen the competitors. I mean the reaction of competitors, of course, they started to take
advantage of the fragile situation of Credit Suisse already during 2022, late 2022, of course, at the beginning
of the year. And it's a pretty normal situation so. Now having said that, I think that as you saw from the
flows, clients are now comfortable and they understand the value added of the franchise, we are able to
retain and actually re-attract back clients. So, now it's our turn to be proactive and we will not spare any
effort to regain back any lost assets.
So, in terms of the Swiss has anything, is anything changing? I mean, it's very important to reiterate that
nothing changes in the way we run our Swiss businesses until they are fully integrated, right? So, from a
client point of view, and in service, and in risk, and capital allocation, nothing changes. And even after we
merged, our commitment, as I said in my remarks, is that we will continue to sustain the combined lending
book. Of course, there are exceptional risky situations, but our principle is very clear. One and one makes
two. We want to keep our market share in Switzerland. Switzerland is strategic, absolutely strategic for the
Group, and we will not want to lose any of the market share we have today.
Kian Abouhossein, JP Morgan
Yeah, good morning, Sergio and Todd. Thanks for taking my questions. First question is on risk weighted
assets. You have around USD 557 billion, USD 145 billion operational risk weighted assets. And I'm just
wondering how we should think about the exit run rates in 2026 in terms of total risk weighted assets as well
as in terms of operational risk weighted assets if I may. And then the second question is related to the non-
core. Could you talk a little bit about the P&L effects of the non-core ex any more active write-downs or sales,
so to say, leading to potential write-downs? I'm just trying to understand the P&L in terms of run rate of the
noncore legacy bank, if I may. Thank you.
Todd Tuckner
Hi Kian. In terms of the op risk RWA, we will come back next quarter after doing a fair bit of additional
modeling in terms of the op risk RWA of the combined bank. We've started to have initial views on that and
initial discussions with our regulators and that informed the 10 billion reduction that I spoke about in my
comments. And then, in terms of the trajectory and how we think about the 5.57 towards 2026, you'll have
more color on that after we complete the business planning process and our 3 YSP and come back early next
year as mentioned.
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In terms of, you asked about the P&L and the run rate in non-core. So, what I would say on that is. So first
off, the thing that's most important is to take costs out and to focus very significantly on the cost takeout
because there's a significant level of overhead and costs that aren't associated with the wind down of the
portfolio. So, the way to think about it is that we have emphasized so far today that we have to take costs
out and effectively, the costs that sit in parts of Credit Suisse that don't work. And so, those costs, whether
they be personnel costs or whether they be technology costs or real estate costs, they move into non-core
and legacy if they don't support the core businesses and they have to be run down extremely quickly. And so,
I would say, first and foremost, it's a cost. The way to think about it is the cost rundown over the integration
timeline. Then there's the asset rundown and we talked about the trajectory from a natural rundown
perspective. And of course as Sergio mentioned that there will be strategically and actively looking at that.
And of course from that perspective, we have taken some PPA adjustments in excess of USD 5 billion relating
to non-core and legacy. I think that's a useful way to think about it too, the fact that some of that pulls to par
and some of that will be fair value positions.
And we will manage that book in the most capital efficient way that we can and dispose of positions as
appropriate. And also keeping just considering funding costs and the costs of operations, technology, people,
etc.
Kian Abouhossein, JP Morgan
Okay. Thank you. If I may just very briefly on the risk weighted assets, if I – to take a very simplistic view and I
just assume. I know the runoff, I can make some assumptions about Basel IV then op risk which is clearly very
difficult to predict if I want to be conservative. One could assume that ultimately the risk weighted assets
conservatively could not grow if at all to materially decline?
Sergio P. Ermotti
Kian, its, you know, we can't really comment right now. We are modeling. We are really going through the
details of the plan. We need to really also go through the exercise. I'm sure you appreciate when we put
together legal entities, the optimization of all that, it's a fairly complex operation.
So, I wouldn't go into a territory of projecting risk-weighted assets going forward because: one, there are two
elements – well, three elements. The starting point is a good starting point. We know that we can make some
adjustments in the next three to four months. Op risk was one of these subjects. But then you need to go
through, first of all, what are the efficiencies we take out as we run down assets. Yes. What are the efficiency
on optimizing legal entity operations? And then what is the growth? Because remember, we are going to
grow, as well. And we have to attach also that prospect into the equation. I wouldn't go into too much of a
risk-weighted assets projection until you see what we tell you in Q3 and Q4, for the Q4 results.
Flora Bocahut, Jefferies
Yes. Good morning. Thank you for taking my questions. I'd like to go back actually to some of the elements
you have discussed on this call already, especially the NCL. Maybe trying to help us understand how much of
the ROCET1 improvement towards 2026 is going to be driven by this unit, considering our move to natural
runoff here, you know, trying to help us assess already at this stage what – how loss-making it is today and
how loss- making it would end up being in 2026, only considering the natural runoff.
And then the other question I wanted to raise is on the cost save. Just to make sure I understand correctly. So
you basically have already a target of 3 billion cost saves on an annualized run rate at the end of this year.
But this is compared to the end of 2022, I think. So, how much of the annualized 3 billion do you kind of
already have, you know, in the 2Q accounts, please? Thank you.
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Todd Tuckner
Thanks, Flora. So, in terms of, I'll take, maybe address the second point first. In terms of the cost saves in the
– in terms of what we're projecting by the end of the year at 3 billion. In terms of what we see already in the
second quarter, we haven't disclosed that specific number. But I think from just the head count reductions
that I mentioned in my remarks, you could probably consider that there's somewhere more than, around half
has already started to hit through, and what we're already seeing in our underlying results.
In terms of our CET1 and how to think about NCL as we go through the process. For sure, NCL is, you know,
is going to be something that weighs down on our CET1 naturally Just given the fact that, you know, we
have significant, at least over the 2024 to 2026 period. If you just look at the natural profile rundown, which
is effectively basis for how we started thinking about the RoCET,1 not the only way we started to model it,
but, for sure, one of the ways that we were thinking about it. There's a drag by definition in the sense that,
by the end of 2026, you could see in the slide the natural profile has roughly half going away. Now, we can
model different scenarios as can you, but we're not going to discuss how we're thinking about it and
obviously, some of that is still very much unknown. In terms of the cost takeout, we would expect to be
taking out the lion's share of the costs in non-core and legacy by the time the integration is materially
complete, by definition. We will do that. There’ll be, we expect some residual carry that we'll have to take on
or continue to run down beyond 2026. So, there is some, if you will, negative burn that is associated with
NCL in our modeling.
Stefan Stalmann, Autonomous Research
Good morning and thank you very much for the presentation. I have two numbers questions, please. So, the
first one is on capitalized software. You have taken these roughly 1.8 billion of software impairments in the
PPA. Can you give us a rough sense of how much of a remaining amount of capitalized software remains in
your group accounts that relates to CS? And is there a risk of further impairments given that you want to
retain only about 10% of these systems?
And the second question relates to your capital requirements. So, you show still at 10.6% CET1 over risk-
weighted assets. If we were to apply the current capital metrics that is outlined in Swiss banking law, what
would be the capital requirement if there was no FINMA transitional forbearance, please ? Thank you very
much.
Todd Tuckner
Okay. Thanks, Stefan. In terms of the capitalized software, as you say, 1.8 billion was the amount that was in
the Credit Suisse AG reported number today. I think in the PPA number overall in total, there was slightly
more about2 billion. You can look at the CS, you know, balance sheet from year end or Q1, Q2, or sorry, Q1
or year end and see, there was capitalized software in the neighborhood of 3 billion. So effectively what we
have done is taken two-thirds down and have one-third left on a shorter economic useful life that aligns with
how we think about: a), the time it's going to take us to fully decommission everything and b), leaving what
we think we still get value from at the end. So, all that has been sort of factored into the PPA. So, I don't see
necessarily further impairments, but because we now have just what's left, about a 1 billion that will have a
shorter economic useful life, that aligns to how we're thinking about the restructuring.
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Sergio P. Ermotti
Stefan on CET1, I think when you look at the fully implemented regime in Switzerland which is not applicable
to us until 2027, it would be around 12.5%. 12-point-plus and that's you know the reason why we raised our
CET1 ratio was both to reflect, you know, a buffer there to accommodate for the restructuring, but also is a
clear, call it small, front running of what we expect to come. As a consequence of that, and our, and the
finalization of Basel III, which is partially already in our books. So, you can count on this number to be
calibrated with a pretty medium term, medium to long-term expectation of the current interpretation of all
regulatory regimes worldwide, including Switzerland.
Anke Reingen, RBC
Thank you very much for taking my questions. The first is on revenue cost synergies. I mean, you had a
comment and especially if you think you can keep this with market share unchanged. Is it something you
really think maybe people get overly concerned and you don't see quite that risk of a revenue dissynergies
even if you potentially have to contract some of this at bit more attractive rates or incentivizing your advisors?
And then secondly, on slide 16 where you show us the return path and there's this block about the funding
cost efficiencies. And that's something you – I guess apart from the drop out of the higher expense funding
at Credit Suisse, is there other areas where you see the material benefits from lowering funding costs and
overall group benefits because this block is the same size as the cost base rightsizing? Obviously can maybe
elaborate a bit more on that area. Thank you.
Sergio P. Ermotti
Let me take the first question. First of all, I haven't said that we will keep our market share. I said that our
ambition is to keep the market share. Now, having said that, Credit Suisse lost their market share and
business in the last 12 months or so.
So, what we count on is the fact that, you know, we will be able to recapture and regain some of the market
share and what you saw lately in the last couple of months is a good sign of that. But, of course, we are not,
we are realistic and we are also factoring in that we may lose market shares because some clients may or may
not feel, you know, that they want a certain concentration of risk. So, you know, there is no danger of us
budgeting or planning blue-sky scenarios on that one. We are realistic, but that should not be confused with
our desire to keep as much as we can.
Todd Tuckner
Anke, on the second, –the second question in terms of material benefits, we see you obviously highlighted
the most significant one, which will be just the take out of the significant cost that we were wearing in
connection with the PLB and the ELA+ facilities. But, I would say, and, as I've remarked earlier, that we expect
the positive contribution from the Credit Suisse wealth management franchise in our NII in 3Q and that
comes principally from having stabilized the business and net new deposits that are also helping on NII. So, I
would say that's another factor that is helping on the underlying profitability.
Benjamin Goy, Deutsche Bank
Yes. Hi. Good morning. Two questions from my side. The first, to play devil's advocate, are there more
outflows to come or where you kind of already had outflows from clients, but maybe some longer-term
structures, partnerships or anything like that take time to see the outflows?
And then secondly, for the first time in a while, your CET1 capital is higher than your tangible book value or
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almost the same. So now, the 15% return on CET1, should that also be broadly similar to RoTE, going
forward, or should we expect more moving parts towards 2026? Thank you very much.
Sergio P. Ermotti
Thank you. Let me take the first questions. I guess, as I mentioned before, now, we are under wealth
management broader perimeter. I think that, of course, we may still have client advisors that resigned over
the last three or four months or that, as they move into a new organization, they may be able to bring some
assets with them. What we see right now is clear that the ability of the people that left a while ago to really
move assets is fairly limited. And this is nothing new compared to what UBS went through 10 years ago or
more than 10 years ago in recognizing that there is a lot of institutional loyalty of the client base. And now
that we have stabilized the franchises, of course, we are even stronger in retaining assets. And as I mentioned
before, our desires to re -bring back assets. So, look, the movement, the gross movements are going to be
very difficult to predict, but the net outcome we feel pretty comfortable will be positive.
Todd Tuckner
And Benjamin, in terms of the return on CET1 versus RoTE impact, I'd say there are two factors that do argue
in favor of moving in that direction, just not yet but for sure on the first one, the denominator effect we’re
bigger and so that's obviously going to make the difference between the historic RoTE versus RoCET1 smaller,
by definition. So – and you know that – so that denominator effect is now in play and it is helpful as you
suggest probably as well, contributing to what you observe.
The other one though which has been our historic delta that really has given us pause to move off of what
we think is a more meaningful return measure are DTAs. But there of course, you know, as they amortize
down, because these generally although not exclusively but generally relate to you know very old losses that
we're you know now you know continuing to just chip away at as that balance comes down, then that's yet
another factor that would argue in favor of moving to the other measure.
Sergio P. Ermotti
Well, by the way, for the foreseeable future and from a the other angle of measuring our capital return
flexibility, the CET1 ratio is a better proxy because this is the true binding constraint.
Benjamin Goy, Deutsche Bank
Fair enough and very clear. Thank you.
Amit Goel, Barclays
Hi. Thank you and thanks for a lot of good information. The first question was, I appreciate there's a lot of
moving parts. We're going to spend a bit of time trying to update estimates and all that kind of stuff. But in
terms of the path for the RoCET1 to get to that kind of 15% 2026 exit rate, are you able to give any color in
terms of expectation for 2024, 2025, or how you’d like it to trend?
And then secondly, just on the costs. It'll be great to get a bit more color on the saving. So, I'm just kind of
curious things like, you know, 10 billion gross, but how much net saving or how much reinvestment of that
do you expect to do where you found the incremental 2 billion versus the 8 billion? And also, how you're
spending, you know, the 12 billion restructuring? Because it does seem like, you know, quite a big number.
So, you know, just wondering if there could be benefits there as well. Thank you.
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Todd Tuckner
Hey Amit. So, as mentioned in terms of color, further color on the trajectory as to we get end of 2023 to end
of 2026, we'll come back on that to provide an update in 3Q as to where we are. But then, you know, a
much more fulsome perspective after our business planning processes is complete by the end of the year into
early next year.
In terms of the cost savings, you know, Sergio also made, remarked in his comments. The gross number is
greater than 10 billion as you highlight. But we will be making investments. We're going to grow our
business. We're going to invest in technology. We're going to, you know, also deal with inflationary factors if
need be. So, you know, that's all in the thinking around it, around half of the gross cost saves relate to
effectively restructuring the Credit Suisse IB and CRU units. And the other half gross relates to the synergies
we expect to realize, but then that will be – they'll be investments back into the technology and the people to
grow the core franchises.
Andrew Lim, Société Générale
Hi. Good morning. Thanks for taking my questions and thanks for all the detail. So, firstly, on the fair value
markdowns that you've taken there, related to that, could you give an idea of the maturity remaining on
these financial assets and how we should think about the reversal of those markdowns? So, you've
highlighted more than 1.5 billion for the second half of this year. Is that the kind of run rate that we should
be expecting going forward?
And then secondly, on the NCL, perhaps I can ask it a different way. Do you have a better idea now of what
the ultimate cumulative losses might be from the NCL? Would they be less than the 5 billion maybe that you
might have been exposed to under the LPA agreement? That's my question there.
And then thirdly, might I quickly ask, on the domestic side, certainly for some businesses, you will have a
significant market share. And I wonder if there's any maybe regulatory risk that that market share might be
looked at and you'd be forced to bring it down to a level which is more palatable to the regulators. Thank
you.
Sergio P. Ermotti
Yeah. Because you asked three questions instead of two, I'll take the last one. On the market share one, as
you know, we got regulatory approvals to basically not be subject to any competitive constraints, and that
was done just to secure and be able to communicate and to be able to place. Although it was already crystal
clear as it is today that there is no market share topics for the combined unit in Switzerland.
I mean if you go across the board, cantonal banks are larger on any dimensions of relevant personal and
commercial banking business in Switzerland. And when you measure in terms of branches, we are combined
the third largest player. So, now this is very relevant but because some people may argue, well, these
cantonal banks are combined versus you being one unit. Well, the fact, the truth of the matter is that we
compete in those cantons with the local cantonal banks. It's extremely relevant to make that difference.
Therefore we will, of course, contribute what the competitive authorities have to say about it and put our
views into it. But I don't really expect that on a fact based discussions we will be subject to any limitation or
meaningful limitations in respect of our activities going forward.
23
Andrew let me just unpack your first and second, I think they're related. So, on the first, you know as we
highlighted earlier, we took around 15 billion of fair value marks on financial assets and liabilities, 12.5 billion
where we indicated would pull to par because they relate to accrual accounted positions and another roughly
2.5 billion relate to fair value positions where we had further markdown in light of liquidity model risk other
type issues.
On the piece that pulls to par, just keep in mind that 4 billion of that 12.5 relates to non-core and legacy. So
that's important to know and about 8.5 billion more in our core businesses. On the core business piece,
generally speaking, we see three to four years that we should unwind between 70% and 80%. There will be
a longer tail especially on some fixed rate loans that will go longer than that. So, we'll see pull-to-par effects
that extend beyond the three- to four-year timeframe. But most of it will accrete to income over the shorter
timeframe, as I mentioned.
To the NCL point though, since we have roughly 4 billion of the pull-to-par in NCL and roughly 2 billion in the
fair value marks, so you have 5 to 6 billion of fair value adjustments in NCL. And I think, to go to your second
question, that's important to understand just given that we think that the positions are appropriately marked.
And from here, we will continue to consider all our optionality in terms of running down the portfolio, as
Sergio mentioned earlier, in a most capital and cost efficient way. But we think the positions are being carried
at appropriate levels presently.
Andrew Lim, Société Générale
That's great. That's really helpful. Thanks.
Adam Terelak, Mediobanca
Morning. Thank you for the questions. I want to get under the hood a little bit more in Wealth Management.
Firstly, on the CS business acquired, clearly there are some business exits to worry about some that you think
non-core in the kind of the wealth management unit. Can you give us a sense of what the revenue attached
to that might look like. But also any detail on AT1 cost savings that come through the NII in that division as
well.
And then secondly, the competitive environment. I noticed in your GWM business, UBS standalone costs are
up on lower revenues. I just want to know kind of what the cost is to retain management at this point? What
are you seeing the competitive landscape on the RM side or the advisors side, but also in your deposit side
what sort of campaigns have you been running to re-attract deposits and how easy or difficult has that been
in the current rates and deposits environment? Thank you.
Todd Tuckner
Thanks, Adam. On the second one, would just say in terms of GWM costs. So, there's very significant positive
operating leverage outside of the US, such important to note this is in the GWM – in the UBS subgroup
GWM, very significant positive operating leverage. We were investing for growth in that business. But that
business as well has been, you know, saw a strong NII performance and had strong PBT growth as I
highlighted in my comments earlier.
As I also highlighted, it's more on the GWM overall side, just the fact that we've seen a lot of cash sorting
and rotation on NII in the Americas and that sort of pulled the Americas revenue down reasonably
significantly. So, quarter-on-quarter, year-on-year. And as a result, you know, we see that negative operating
leverage, but we're continuing to invest in that business across the board and so some of that as well,
contributes to the higher cost.
24
On your deposit campaign question I would say that you know like any bank, we value deposits, we value
deposits in the win-back context in wealth management. We also just value deposits to fund our business,
loan growth, et cetera, so there's nothing I've seen that I would call out there in terms of deposit betas that
have moved in a direction I would consider to be anything other than what we see across peers.
In terms of the acquired – you were asking business exits and the revenue attached. At this point, we have in
terms of what's being expected to move into non-core and legacy that was highlighted on one of the earlier
slides. The revenue attached with that business is less than 100 million on an annualized basis in terms of net
revenues, in terms of what's moving across. And that's of course you know not risk-adjusted for – and so
that, that needs to be considered. In terms of AT1 cost savings that hit through the business from what had
been, say, anything there has really just been captured in the Credit Suisse Corporate Center as an offset
potentially to the inflated cost so I would expect that that'll normalize now as you know as the businesses
come together.
Adam Terelak, Mediobanca
So, funding it seems that is in the corporate center and not in the divisions?
Serio P. Ermotti
Can you repeat? It wasn't clear. Sorry.
Adam Terela k, Mediobanca
So, any funding noise, AT1 versus liquidity facility resourced out in the corporate center rather than in-house?
Todd Tuckner
Yeah. That was our understanding from Credit Suisse's practice pre-acquisition, yes.
Adam Terelak, Mediobanca
Okay. Thank you.
Andrew Coombs, Citigroup
Good morning it’s Andrew Coombs from Citi and thank you for taking my questions. Two if I may. Firstly, I
want to turn back to follow up on the PPA pull-to-par bit in relationship to the restructuring charges. You
made this comment that, out of the period at end of 2026, I think restructuring charges will be largely but
not wholly offset by the PPA pull-to-par effect. And then in your later comments, you talked about probably
0.5 billion of pull-to- par effect, of which 4.5 would be noncore, and that most of that would be recognized
in a three- to four-year timeframe. So, can we assume restructuring charges of the magnitude of 12.5? And
can you give us a feel for the timing of those relative to the PPA pull-to-par?
And then the second question is on slide 29. You provide a useful quarterly trajectory going from minus 0.3
billion in Q2 and you talked about breakeven in Q3. But you also flagged 750 million of savings, 550 million
of funding cost savings. There's a 650 million arguably one-off ECL charge on the non-credit impaired CS
portfolio data this quarter. So, just trying to understand the going from minus 0.3 billion to 0, even with all
those additional benefits Q-on-Q, what's the offset? I guess there'd be some seasonality on revenue, a bit of
a decline in NII. But any more color there?
25
Todd Tuckner
So, Andrew, in terms of – I’ll take the second point first – in terms of the story on the underlying profitability,
yeah, I mean just be very clear that the cost saves that we expect to see by the end of 2023 of 3 billion, which
we think you can price into 2024, some of that has been realized. But as I would – the way I would think
about it is there is work that's ongoing and we expect that the greater than 3 billion number is something
that we'll see at the end of the year hitting through. I would continue to reemphasize the funding cost point
that was in 2Q that will benefit 3Q and fully in 4Q that helps. And then the stabilization as flows and all that
will sort of hit through as we go on an underlying basis. And as I said, we expect to break even in the third
quarter coming out of roughly a 300 million- plus improvement. And then to be positive in 4Q for the reasons
that I mentioned.
In terms of the restructuring you asked about, we'll come back in further details in terms of how much
restructuring specifically there'll be. We're giving a perspective that we expect the number to be broadly
offset by the pull-to-par effects. But at this point in time, we're going to need to detail that out in the
business planning process and come back, as we have said, with our fourth quarter earnings.
Andrew Coombs
Thank you.
Vishal Shah, Morgan Stanley
Hi. Thank you so much for your questions. My first one is on wealth management. Just wanted to get a sense
on you know how you are assessing you know the business overlaps in that segment – in that segment or
you've had you know further chance to sort of you know look at you know different regions and how to
respond to all the ongoing competitive pressures and in terms of you know relationship managers and then
sort of bankers in that segment? So, if you could give a bit of an update on that side?
And then the second one is on the investment bank, the CS non-core perimeter of 55 billion. I know in one of
your slides have provided a natural run -off rate, but I was just trying to get a sense if you could provide any
sort of color in terms of what is your sort of ambition on actively winding down this perimeter in terms of
timeline, i.e., could we expect you know the next two years basically by 2025 you know broadly most of this
run down to be done. Is that is that a fair assumption or are you looking at it in a bit of a different way?
Thank you so much.
Todd Tuckner
Hey, Vishal. I mean I think on this on that second question, we've addressed that in the sense that you know
we offer the natural rundown just given you know of course, we have to take care and ensure that we're
protecting our counterparties and we're doing things in the best interests of the firm and so on these
positions that we, you know, we will look – we will look strategically to exit them as quickly as possible. But
at this point, I would say, we'll come back and give you progress as we've done already in 2Q in terms of the
actual RWA reduction relative to the natural runoff profile. We'll continue to do that. And to the extent we
can give more color through our planning process, we will. But again, these are positions where we think,
naturally, there'll be strategic exits and opportunities that arise and not something we'll, I will be disclosing.
26
In terms of your first question on Wealth Management and assessing business overlaps, I mean, in general,
the way we approach the integration is to look at Credit Suisse is adding value in a lot of the areas in which
we already operate. But also, as Sergio mentioned, areas where we have less of a presence. Brazil was
mentioned. There are important parts of the Middle East where that's the case; important parts of Southeast
Asia. Also, much bigger in Europe overall. So, in terms of assessing the overlaps, I mean, in the end of the
day, relationship managers have their client relationships and we want to retain them all. And of course,
we're looking at how to manage the business in the most efficient and effective way.
I would make one additional comment which is very important, which is that Iqbal had announced the area
market heads on a combined basis, and that was very important just in the last several weeks and was in
comments Sergio made as well, because when we start integrating how we approach the market and so
we're in the market on an integrated basis, which, of course, just took time even though we move quickly in
the two and a half months since we've closed, to be in the market on an integrated basis having market
heads that have now been decided across wealth management on a combined and integrated basis is quite a
step that helps us to manage some of the business overlaps and competitive pressures that you were asking
about.
Vishal Shah, Morgan Stanley
Okay. Thank you so much.
Sergio P. Ermotti
Okay. The last answer and questions and I'm sure we're going to have a chance to stay in touch between
now and November 7
th
Thanks for your questions. And well as I say, looking forward to staying in touch. Thank you.
27
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UBS Group AG
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Name: Ella Campi
Title: Executive Director
UBS AG
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Date: September 1, 2023