UBS Group AG

Ladies and gentlemen, good morning. Welcome to the UBS second quarter 2023 results presentation. The conference must not be recorded for publication or broadcast. You can register for questions at any time by pressing star and one on your telephone. Should you need operator assistance, please press star and zero. At this time, it's my pleasure to hand over to Sarah Mackey, UBS Investor Relations. Please go ahead, madam.

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. Please also refer to the risk factors filed with our group results today, 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 Sergio Motti, Group CEO.

Thank you, Sarah, and good morning, everyone. I hope you had a relaxing summer break. For us, the past eight weeks were intense, as we were busy writing the next chapter of 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 savings 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 Pretty Swiss after a thorough strategic review. The thing I'm 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. 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 APEC, and build on our leadership in Switzerland and in the EU. We will rentalsly focus on clients and continuously improve and expand our services and products. With $5.5 trillion 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 level of client service. We will achieve our strategy while remaining disciplined in our resource management across the entire firm. EIB consuming no more than 25% of the group's risk-weighted assets and the round-down 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. Before I discuss the Swiss bank decision, let me give you a brief overview of our assessment of Credit Suisse as of 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. 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 cost 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 strengths, 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 own 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 a 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. So, that being said, let me walk you through how we come to our decision. on the future of Credit Suisse Schweiz. As I promised when I returned as a 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 spin-off, 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 focus perimeter, which would exclude segments requiring global capabilities. The final outcome was crystal clear. Full integration is by far the best choice. 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. 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 Pretty Swiss White 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 carve-out 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. By contrast, being a part of UBS ensure it will have continuous banking 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 consideration 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 the cost reduction will come from natural attrition, retirement, and internal mobility. Around 1,000 redundancies will result from the integration of Credit Suisse-Schweiz. This 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 2000 additional redundancies in Switzerland over the next couple of years. After weighting all the above factors, we come to the view that a full integration is the best way forward. Our decision reinforces our commitment to clients, employees, and the Swiss economy. Our goal is to make the integration and the transition for clients as smooth as possible. The two Swiss ring fence entities will operate separately until their planned legal integration in 2024. Credit Suisse brand and operation will remain separate during that time. We will gradually migrate clients onto our system 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 the 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. 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. Now, 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 the positive asset flows and strong engagement across wealth management and the Swiss business. We saw formidable momentum in deposits with $23 billion 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 nine 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 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. Let's move to assets that have been designated as non-core. First, let me briefly touch on the $9 billion risk-weighted assets 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 transfer 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-weighted assets. 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 non-core legacy will comprise of $224 billion in LRD with a significant portion of high quality and liquid assets and $55 billion in risk-weighted assets including excluding up-risk risk-weighted assets. 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 risk-weighted assets. Around half of those come from sales that we actively pursued. As I mentioned before, this is not the first time our organization has managed a successful rundown 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 cost 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 portfolio. On those positions we do decide to exit, we will move at pace, acting fairly and protecting our clients and counterparties. The national runoff profile is a steep one. As you can see from the chart, we will have a 50% or 27 billion reduction in non-uprisk risk-weighted assets by 2026 and a similar reduction in LRD. But let me assure you that our proactive approach to accelerate the wind down will continue. Now let's turn to cost reduction, 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. This is an acceleration and expansion of the work that the firm itself saw as necessary to put a stop to losing money. Secondly, additional efforts are required to generate synergies across the combined businesses. We aim to take out over $10 billion 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 application 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 plus IT application, 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. 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 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. 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% CT1 capital ratio over the medium term. And as we exit 2026, we aim to achieve an underlying return on CT1 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.