UBS Group AG

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. These 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's now my pleasure to hand over to Ralph Harmers, Group CEO.

Hey, thank you, Sarah. Good morning, everyone. I'm pleased to share good results with you for this quarter. Amid significant macroeconomic and geopolitical uncertainty, we executed with discipline. We delivered $1.7 billion in net profit, and our return on CT1 capital was 15.5%. Our capital position remains strong, with a CT1 ratio of 14.4%, as you can see. And we managed cost well, leading to a cost-income ratio of 71.8%. And our balance sheet for all seasons and strong risk management continue 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 spent 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, 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 in foreign exchange and rates, but 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 that snapshot here on this slide. We helped private clients seeking opportunities to protect and grow their wealth. They diversified their portfolios through mandate solutions and made additional commitments to private markets. And as a result, for the need for guidance which we gave, we saw $17 billion in net new fee-generating assets coming in through the quarter. Wealth management clients are seeking higher-yielding products on the back of higher interest rates. We're capturing this demand through savings, through CDs, money market funds, and half of the $16 billion of net new money coming in through asset management in money markets. So half of the $16 billion in money markets, so $8 billion, is actually coming from GWM clients. We also continue to actively manage our deposit offering. and optimize net interest income, and that's where we saw 14% growth year-on-year in our deposit-taking businesses. In lending, we've seen our clients deleveraging Lombard loans, specifically in Asia Pacific, but we saw demand for mortgages in Switzerland and the US. 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 another strong performance for global markets given our mix and geographic footprint. We benefited from foreign exchange and rates volatility, which resulted in the FRC 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 effects, are supporting a record quarter in EFX as well. As you can see, consistent execution of our strategy is driving organic growth despite volatile markets 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, well, employment data are solid, but inflation remains high. As a result, we project Fed funds to peak at five to five and a quarter, and such elevated rates increase the risk of recession. Interest rate hikes have reduced asset levels and 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 alternatives continue to drive inflows. That fueled over $4 billion of net new fee-generating assets. mostly from our existing financial advisor base. We also had a strong quarter in advisor recruiting, and our hiring pipeline remains strong as well for the fourth quarter, and that should support our flows also through the fourth quarter and beyond. These hires on the line are a commitment to drive scale and improve the GWM, America's 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 budget. Now moving to Switzerland. Our economy is expected to narrowly avoid a recession due to relatively lower inflation and limited dependence on Russian gas. That said, many of our Swiss retail and small business clients will also be impacted by disruptions across the rest of Europe, and we are focusing on supporting them through the energy crisis. The stability of our business in Switzerland is, by the way, demonstrated by a continued solid growth, 2 billion in net new loans, 2 billion in net new deposits, and 400 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 impact, as you can imagine. Clients turn to us, as indicated earlier, for advice in these uncertain and unprecedented times, and the net fee generating assets on the back of that increased by 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 improvement 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 is attractive structural long-term growth prospects in the region. But the short term, it is clear that our clients are dealing with COVID-related restrictions still. That's delaying recovery, also in the property sector. We think there is 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 these dynamics will restrict our clients' willingness to take on leverage, and also it will limit their willingness to transact, at least through the end of this year. And that said, they continue to look for us for diversification and investment expertise, and as a result, we saw another strong quarter in net new fee-generating assets also in this region with $7 billion of inflows. Our analyzed net new fee generating assets growth rate in Asia Pacific is actually 12% year to date. In 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 led 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 investment 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 C2-1 capital at 15.5%, costing ratio, as earlier mentioned, at 71.8%. Of course, we will continue to be focused on efficiency and expenses, and our cost discipline will further intensify as we fight inflationary pressures. and we prepare for tougher times to come. Turning to slide seven, given the environment that we are in, we felt it was important to give you a peek into the position of strength that we have facing some of these uncertainties. Our capital ratios remain well above our target levels at 14.4% in CT1 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 returns to shareholders. So to summarize, we delivered a good performance in the quarter. Our capital light model, our global diversification, the balance sheet for all seasons continue to be a real competitive advantage. In the first nine months of the year, we consistently executed with discipline. performed in line with our targets every quarter, and that gives us also confidence in our ability to meet our return on CT1 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 a balance sheet for all seasons and against a complex market backdrop. Net profit in the quarter was $1.7 billion. Raf just walked you through the reported profitability with return on CET1 of 15.5% and a cost income ratio of 71.8%. Our underlying profitability was not very different. Slide 23 in appendix walks through the items, which are the same in nature as last quarter. Total revenue was down 10% against 6% lower expense. FX impacted both by $300 million for a net effect of around $50 million. The net credit loss release was $3 million compared to a $14 million release last year, reflecting great stability in our credit metrics and strong risk management. On slide 10, The macroeconomic environment reflected depressed equity and fixed income markets, low levels of client activity, subdued M&A and capital markets, and higher rates. Our revenue story mirrors those same themes, with underlying revenue, XFX, down 7%. We had lower asset base and transaction fees, lower global banking revenue, but higher combined NII in GWM and PNC. Global market revenue was broadly flat against a very strong prior year quarter. Now moving to NII on page 11. The drivers of NII have been consistent over the course of this year, with a strong benefit from rates, which you see in the first bar on the chart. Our actual deposit betas were better than we modeled. the rate impact was partially offset, as you see, by deposit volume and mix. On volume, next bar on the chart, the impact was driven by GWM, where deposits decreased by $23 billion last quarter and $13 billion this quarter, both in line with peers. FX accounted for almost half of the $13 billion decrease. And regarding mix, We saw clients move from sweeps 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 and another 25% in our own money market funds. So overall for this quarter, NII was up $223 million, or 14% year-on-year. The U.S. dollar increase in NII was 41%, but it was partially offset by a reduction in Swiss franc due to lower S&V benefit and deposit fees. Looking ahead, based on the forwards, we expect approximately 200 million incremental NII in the fourth quarter versus the third quarter, of which two-thirds in GWM and one-third in PNC. This would lead to a total increase of $1 billion in 2022 versus last year. We expect 2023 NII to be higher than 4Q22 annualized, given our exposure to Swiss franc and euro and no further S&B and deposit fee impacts. A USD NII is expected to peak in 4Q22 or at the beginning of 2023. Now turning to costs on page 12. This quarter's operating expense was down 6% year-on-year. Excluding litigation and FX, the number was down 1%, with inflationary pressures on salaries, T&E, 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 and FX. If you also exclude variable comp, expense was up 3%. For the full year, we see expense ex-litigation and FX up around 1% year-on-year. We are on track to deliver an incremental $400 million in 2022 as part of our program to deliver $1 billion cross-saves by 2023, as announced last year. We are laser-focused on cost, and in the context of the current environment, we have put in place specific measures regarding non-critical hiring, T&E, consulting, and tech prioritization. Let's move to our businesses on page 13, starting with GWM. GWM profit before tax in the quarter was $1.5 billion, down 4% against a record 3Q21. It was down 10% x FX and gains on sales in 3Q22 and 3Q21. Revenue was 4% lower than last year, as market headwinds continue to challenge our asset-based and transaction revenue in all regions. These headwinds were partially offset by net interest income, which was up 23% year-on-year and up 8% sequentially, as we continue to actively manage deposits across margins, volumes, and mix. The operating expense ex-litigation NFX was down 2% versus last year. This demonstrates our strong cost control that allowed us to deliver a cost-income ratio of less than 70% in GWM and less than 80% in Americas. Net new fee-generating assets were $17 billion in the quarter, a 5.5% annualized growth with positive flows into self-directed mandates, SMAs, and alternatives. Ralph walked you through the strengths 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 3Q 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, our 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% XFX, 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 continued to invest. As Ralph mentioned, net new money was strong in the quarter, at $18 billion, of which $16 billion in money market funds, with significant wins in the U.S. and EMEA. Excluding money markets, net new money was $2 billion, driven by fixed income. Now on to slide 15. DIB 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 our capital light business model, we can operate with an RWA density of 30% compared to our estimates of around 50% for our US peers. Revenue in global markets of 1.7 billion was down 1%, or up 2% XFX, against a 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 EFX, 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 effects, largely driven by inflationary pressures on salaries and higher technology expense. On page 16, moving to P&C, which had strong momentum and an 8 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, as increases in recurring and transaction-based income were 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, in 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. Costs ex-litigation were 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 CET1 capital ratio was 14.4%, and our CET1 leverage ratio was 4.51%. Turning to the CET1 capital ratio walk, 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 was nil, quarter on quarter, as the FX impact on CET1 and RWA offset each other. Our capital return story remains strong. We increased our dividend accrual from 51 to 55 cents, a 10% year-on-year increase, and we are on track to buy back approximately $5.5 billion of shares for the four years. 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, while no one is immune to the macro environment, UBS is well positioned to face short-term challenges. We have strong capital, capital returns, 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, let's open up for questions.