UBS Q1 2024 Results Better Than Expected; Limited Detail on Swiss Too Big to Fail Requirements

Morningstar DBRS has released a commentary on UBS Group AG (UBS or the Group). Key highlights include:

-- UBS returned to statutory profitability in Q1 2024 with a solid net profit attributable to shareholders of USD 1.8 billion, in contrast to quarterly losses in Q4 and Q3 2023.
-- This was achieved thanks to a jump in profitability in Global Wealth Management (GWM), a successful Personal and Corporate Banking which reflects UBS’ operations in Switzerland, as well as a positive performance in the Investment Bank thanks to Global Markets and the Group’s efforts to increase its market shares in the US. In addition, we note the Non-Core and Legacy division hardly generated losses in this quarter.
-- UBS is making good progress in its objective to streamline operations and reduce costs. The migration of Credit Suisse clients to UBS platforms is expected to take place later in 2024, whilst the Group’s cost-to-income ratio improved to 80.5% in Q1 2024 from 105.7% in Q4 2023 on a statutory basis.
-- The Group’s CET1 ratio increased to 14.8% on lower risk weighted assets. We have limited details on the proposal to strengthen the Swiss ‘Too big to fail’ requirements. However, if the Group’s regulatory capital requirements significantly increase, this could mean UBS will initially have reduced flexibility to distribute capital to its shareholders. At the same time, we note the transition period starts from end-2025 and will end in 2030 at the latest.

“UBS reported better than expected Q1 2024 results in all its operating divisions as well as good progress in its integration/restructuring plans,” said Vitaline Yeterian, Senior Vice President, European Financial Institutions Ratings at Morningstar DBRS. “We particularly note the contribution of the largest contributor to earnings, Global Wealth Management, which underlying profit before tax more than doubled and included positive contribution from Credit Suisse platform, as well as a return to profitability in the Investment Bank.”