UBS : Transcript (goldman sachs conference june 2025 transcript en)

Goldman Sachs European Financials Conference

11 June 2025

Fireside chat with Todd Tuckner, Group Chief Financial Officer; Moderator: Chris Hallam

Transcript. Replay is available at https://www.ubs.com/investors

Chris Hallam

It's my great pleasure to introduce our next speaker, Todd Tuckner, Chief Financial Officer of UBS, a role which he's held since 2023. Prior to that, having been CFO and head of business performance and management for the GWM business.

It's been a pretty hectic past few days. The format, as per the other sessions, we have 35 minutes. We've got a handful of questions to run through together. We're going to leave some time for audience Q&A, but first of all, look, Todd, I know there's been a lot going on, so sincere thanks for making the trip up here to speak to everybody.

Chris Hallam

And let's just jump in straight on capital. I mean, how do you assess the current situation regarding the review of the capital requirements in Switzerland?

Todd Tuckner

Well, as you know, on Friday of last week, a lot was published supporting various things, supporting financial stability in Switzerland, and by and large we're in favor of the vast majority of the proposals.

Now, naturally as to capital we're disappointed certainly because we think ultimately that framework were to come to pass, would be misaligned with international standards and clearly would be disproportionate. We also struggle a little bit to reconcile how the proposals are an appropriate and proportionate response to lessons learned from Credit Suisse.

But let's unpack maybe the numbers a little bit. So again, if these proposals come to pass, they would increase the CET1 capital of our parent bank, which is the first tier subsidiary of group by 24 billion, mostly relating to the capitalization of foreign subsidiaries. Now, that becomes that capital is effectively trapped, and that creates at the group level a CET1 capital ratio of 19% as we illustrated in what we published on Friday in response.

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Now interestingly, the proposals also would see the capital supporting select assets like deferred tax assets and software to be eliminated, and so that has the effect of reducing the CET1 capital ratio from 19 to 17.

But for me, the key takeaway is that the 24 billion is the binding requirement. So the fact that our CET1 capital ratio, doesn't look as severe as a result of these capital deductions is, I would say, interesting. But we shouldn't lose sight of the fact that the key is the 24 billion capital build.

And I would just finish by saying on this point that we were already catering for around 18 billion of additional CET1 capital from the acquisition of Credit Suisse, the removal of the regulatory filter 9 billion because we're bigger as a result of the acquisition, our market share is increased, so it's over 40 billion of capital that we would have to cater for were these proposals to come to pass, and it's just a result that we think is just not proportionate.

Chris Hallam

So I guess how are you positioned to navigate that backdrop, and how do you respond from here?

Todd Tuckner

Well, I would say our globally diversified business is one that has been adding value for our clients and for our shareholders. Our underlying operating performance has been strong. We have a balance sheet for all seasons. We're integrating Credit Suisse quite effectively, and so we have a lot of confidence in our strategy, and we're reluctant to back down from that.

This said, this is the beginning of what can be a long process. I mean certainly, there's a consultation process that will now ensue in light of the ordinance proposals, and we intend to contribute to that process. There's also a political process that ensues beyond that that'll address the bigger issue of foreign subsidiary capitalization, and if invited to, we'll for sure participate in that as well.

For us, really the most important thing is to ensure that those who take decisions have all the facts and have undertaken an appropriate cost benefit analysis. And we believe that if they have the facts and undertake a cost benefit analysis, that ultimately we can get to an outcome that's more proportionate and a situation that's better for all stakeholders, including importantly the Swiss economy.

Chris Hallam

And I guess in that context then, how are you calibrating your targets and your capital return ambitions?

Todd Tuckner

Well, we reconfirmed, given nothing takes effect at the earliest until 2027, we reconfirmed our 2025 expectations of increasing our dividend accrual for by 10% year-on-year. We intend to repurchase up to 2 billion of shares in the second half of the year for a total of 3 billion.

In terms of 2026, it's important to reiterate what we've said over many quarters, our ambition was to ultimately return more than we did in 2022. But after the white paper was published by the Federal Council in April of '24, we did say that that ambition is subject to this Swiss capital debate question, but we also said that we wouldn't start and stop in terms of capital returns. So all of that remains intact. But in terms of what we'll do in 2026, we will articulate that early next year with our fourth quarter 2025 earnings.

But staying on the context of ambition and targets, so from a target perspective, we remain committed to our getting to an underlying return on CET1 capital of around 15% by the end of 2026, an underlying cost income ratio below 70 also by the end of 2026. Both of those on an exit-rate basis.

Naturally, in terms of longer term ambitions that we've talked about in the past, we have to see what the timeline ultimately is and have more visibility around the rules. On the timeline, I would say, and this does... also, I should add that in the context of 2026, I think it's reasonable to assume that despite the fact that there was nothing specified around a phase in period for the capital deductions around DTAs and software, I think it's reasonable to assume that there will be a phase in period. But that, I mean, we don't control that, we don't know, and that's something that the Federal Council ultimately has to clarify itself.

Chris Hallam

That's just a reasonable assumption you need clarification?

Todd Tuckner

Yeah, yeah.

Chris Hallam

Okay, understood. Okay, I'm going to pivot away from capital a little bit. So obviously we've got the numbers as of Q1, but then post-Q1, there's a huge amount of turbulence across bond and equity markets, fresh concerns about inflation, et cetera. So how did that shift in market backdrop impact the performance of your businesses in the second quarter in the near term?

Todd Tuckner

Yeah, so we publish first quarter earnings a few weeks after the trade and tariff announcements out of the US. And we had already seen, Chris, as you'll recall, I mean, we had already seen a fair bit of market dislocation at that point in time. And we said that if that market uncertainty persists, we could see that weighing on client sentiment and ultimately activity levels.

Now in May, ultimately markets were calmer, equity markets recovered their year to date losses. Bond markets though remain pricing in a lot of uneasiness still however. But by and large, we're really pleased with the progress we're making across our businesses.

I would highlight on the banking side, we see across the street deal making down, we see global fee pools down. Across the street, mid to high teens is at least the expectation or at least where we are at present in 2Q. We are, in our banking unit, tracking market performance.

I would add, however, that we expect an additional 75 million adverse P&L relating to our LCM business in relation to a mark on an individual position and some risk management transactions that lost value as the markets recovered in May.

I'd also highlight a few other points I think that are relevant for the quarter. We've seen the dollar weaken against in particular the Swiss franc in the quarter by 7%. That does have an impact on businesses, in particular GWM whose cost base is fairly highly indexed to the Swiss franc in a way that the revenues aren't as indexed. And so for GWM, we expect that the weakening of the dollar will have an adverse impact on underlying operating expenses of around 150 million. We'll see some offsetting relief on the revenue line, but I wanted to specifically call it the expense line. And if dollar/Swiss stays around 82 for the rest of the year just to give a sensitivity, we would expect in the second half of the year to see in effect per quarter around half to two-thirds of that level.

Another point I would make, last month we announced the settlement of the legacy cross-border matter Credit Suisse had with the Department of Justice. That will give rise to a 400 million credit to litigation expense in Non-core and Legacy. So it'll be a credit for the group of around 400 million. There'll be an immaterial charge at the parent bank level for that same matter where we didn't have the PPA reserve to support that particular matter.

And lastly, I would just point out that I guided in 1Q that our tax rate for the quarter, particularly because of restructuring that we're doing related to the integration could be around zero. Now that we have more visibility around some of the planning we've undertaken, we now expect for the second quarter to record a tax credit of around 250 million that will support net profit in the quarter.

Chris Hallam

Okay. So there's a lot of numbers there. Maybe we jump into each of the individual businesses as well. You mentioned some of the changes in client activity you saw post-April. How are clients positioning and engaging with UBS in the wealth business? And if we focus maybe in the US wealth franchise, you've recently highlighted bringing a broader suite of products and capabilities to clients as you sort of progress towards that mid-teens pre-tax margin target, what are the key initiatives and signposts that we all should be watching to assess delivery on that ambition?

Todd Tuckner

So in Wealth Management, Chris, our first priority is to stay close to clients and to help navigate markets like these. I think uncertain markets have been playing to our strength. We see that in the performance. I mean, 1Q was particularly strong for Global Wealth Management. And I'd like to call out the APAC performance given that APAC has completed the integration, the client migration was completed at the end of last year. So 1Q is an indication of what the true potential of Global Wealth Management is as we get past the entire integration when we look out. So I remain very optimistic about the business.

Just turning to the US, we remain committed to increasing pre-tax margins to mid-teens by 2027. All the things I talked about in the fourth quarter, the various initiatives that we're undertaking, enhancing net interest income by building out our banking capabilities, more cost discipline, including better aligning financial advisor incentives with our group strategy, enhancing acquisition channels, particularly around assets and clients. All those things are a focus of ours. We're chipping away, and we're keeping our head down, but we're making progress.

Chris Hallam

And then if we look at the Investment Bank, you've got a multifaceted franchise right across Global Markets and Global Banking, but equities and sales and trading are the largest revenue contributor. How do you see the mix of performance within the IB evolving from here? I mean, you talked earlier about some of the

nearer-term challenges on the banking side of things, but how do you see that mix evolving over the next few quarters and years?

Todd Tuckner

Yeah, Chris, I mean, I'm really pleased with the performance of the IB. And particularly the parts of Credit Suisse that we retain in IB core have really strengthened the Investment Bank as evidenced by its performance, and also has helped us to increase market share.

And it's also important to emphasize that the IB and Wealth Management just work in such a complimentary fashion. People can say that that's how the IBs work with their wealth management units. I mean, we really live that and go to market, and that's how we successfully serve our wealthiest and most sophisticated clients. You see that in the performance we've been generating.

In terms of the mix, look, I think markets will continue to improve, and markets, of course, has had a very strong run, but I do see banking actually growing faster, notwithstanding my comments about 2Q a few minutes ago. I actually see the mix improving such that banking will grow faster.

We've talked about, Chris, and I know you've asked me in the past about how do you see the ambition of doubling banking revenues by '26 relative to its 2022 performance. And I said, we're on track, need supportive markets like '24 was the first maybe quarter and a half, a little bit less. So let's see how the rest plays out. But I remain optimistic. And the right balance for banking as a function of the IB is more like a third. We've seen even during the course of '24, it was probably a quarter and even in Q1 where global fee pools were a little bit challenged and markets were strong. It was more like a fifth, but I see a third as the right balance ultimately.

Chris Hallam

And then in P&C, given the increasing likelihood that interest rates in Switzerland could move below zero in the shorter-term, how do you see NII evolving in that kind of scenario? And to what extent do the recent trade developments, I mean, how do they impact your outlook ambitions within Switzerland from the P&C side?