UBS Group AG (UBS) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, and thank you for joining our media call. As usual, we are joined this morning by group CEO, Sergio Ermotti; and our group CFO, Todd Tuckner. You would have seen that in addition to our fourth quarter and full year results for 2025, we've also presented an investor update earlier today. Let's now open it up for questions. Operator, please go ahead.

The first question comes from the line of Alich Holger from Handelszeitung.

Two questions quickly. First, coming back on the P&C unit. One analyst asked about the 2026 exit rate of a combined ratio of beneath -- below 50%. Just to clarify, you said you're optimistic that thanks to the decommissioning and new business, you will reach that target or that ambition. Just to clarify, so you can go to under 50% without further strengthening cost-cutting efforts, the first one. Secondly, you said you streamed CHF 9 billion to the UBS AG, where CHF 4.5 billion will be upstreamed to the group in terms to pay the share buyback and the dividend. So CHF 4.5 billion stays at UBS AG in terms to prepare maybe the strengthening of the capital rules. To clarify on that, how much money is yet there parked in total at level UBS AG? Is it more than the CHF 4.5 billion? Can you give us a total sum there to clarify that?

So let me take the first question by reading you what I said so that we have clarity again. In terms of our financial ambition, it is likely that the Swiss franc interest rate headwinds that have persisted since 2024 will delay the achievement of an underlying cost/income ratio below 50% by the end of 2026.

Okay.

Second question?

On the second question, you asked in UBS AG, how much is, in addition to -- I think I understood your question is we have accrued a CHF 9 billion dividend. We're paying CHF 4.5 million of it in the first half. We will revisit whether we pay the second half later in the year, not least also owing to developments in the capital framework. So I think you're asking what else is there in the end, if -- at this point, I have additional capital that was upstreamed this quarter that I would also eventually upstream to the holding company, in addition. But as I highlighted during my comments that there are FX driven headwinds on our Tier 1 leverage ratios that prevent me from -- while maintaining prudent buffers, prevent me from upstreaming as much as I would have otherwise done, in order to bring the equity double leverage ratio at the holding company to around 100%, which is where we've guided in the past, which is also equivalent to the pre-Credit Suisse acquisition levels. So that -- the money that is constrained in terms of being upstreamed because of the Swiss to dollar Swiss rate is, if you will, for now, seeing a surplus capital in the parent bank.

And the total sum that is in part at the level of UBS AG, which is possible to upstream to the group, what is the total number in 2024, there has been upstreams too, if I'm not -- if I'm correct?

Well, last year, we upstreamed -- we paid CHF 13 billion last year in '24. And this year, we expect to pay CHF 9 billion up from the parent bank.

And it's very important to remember that this kind of upstream was always part of our planning process. This is not new discovered capital. It was always there. We all knew that subsidiaries of Credit Suisse were overcapitalized for the reasons we know. And now that we were able -- we were able to derisk much faster than expected, we are able to upstream faster than expected, but this is no new capital.

The next question comes from the line of Mercedes Ruehl from FT.

Just wanted to get some clarity on the U.S. licensing process in terms of the remaining steps between the initial conditional approval and final authorization. What does the expected time line look from here? And more broadly, how would you characterize the U.S. regulators engagement with your license applications so far in terms of responsiveness and pace?

So the time line in terms of moving from conditional approval to final approval is something we expect during the year. And the engagement has been obviously quite constructive with the authorities, with the OCC and the Federal Reserve on the topic. Because naturally getting the -- securing the approvals means that they're satisfied that we're working towards their heightened standards that they require in order to get the national charter.

The next question comes from the line of Young-Sim Song from AWP.

I have two questions. One regarding your outlook. I would like to know, do you see this quarter in a similar light as the fourth quarter? And do you expect volatility going forward this year due to political events and geopolitical issues? And second question regarding regulations. What do you think of the proposal to have your foreign subsidiaries fully capitalized but part of it via AT1 bonds?

So on the first question, in terms of our outlook, as we entered the year, and you can see this in our outlook statement, we felt like the markets were broadly constructive in terms of markets, the equity markets, reflecting higher dispersion and lower correlation and informing reasonably good market conditions for our trading businesses and on our private client side. Clearly, the first quarter, as we came into it, remain risk on, albeit requiring diversification across asset classes and geographies as we've seen. But as we also highlight in our statement, there's a lot of -- the potential for event-driven volatility and spikes in volatility is high, and we're seeing that just if you look at some of the commodity issues of late, geopolitical issues, just even some of the AI issues from very recent just makes for significant fragility. And where we need to watch the impact, whether it turns into longer-term trends. So that's something where we need to watch. But it's, of course, too early to call, if what we saw coming into 1Q is something that will continue or will fundamentally change as we move through the year.

On the AT1 topic, I think that, as you saw, these options about any other potential remediation or alternatives to how to capitalize the foreign subsidiary were totally dismissed in a very superficial way when the proposal was pointed out. So we do welcome the fact that different stakeholders are interested to go deeper and analyze other options that are available so that we can have a more fact-based discussions around how to address the lessons learned from the Credit Suisse failure. I just want to remind once again, and I will keep doing that. Credit Suisse didn't go down because the Swiss capital regime was weak. Credit Suisse went down because, among other reasons, it was allowed not to fully implement the Swiss capital regime, and it's time for people to recognize that and take the appropriate accountability.

The next question comes from the line of [ Christian Colder ] from [ Blake ].

I've got two questions. First one, is it true that at the end of the integration process, mainly former Credit Suisse employees will lose their job, and why is that so? And how many former Credit Suisse clients lost during this migration process?

On -- let's start with the client. I think that when you merge the two largest bank in any country, in any mergers and every level, you always have a situation in which clients are looking for diversification. If you look at our market share developments, we lost some market share that was somehow expected because of what I just mentioned. But also, we lost some clients that basically add relationships that were absolutely not justifiable in terms of return on capital deployed. So we're economically not viable businesses. So in that sense, we fully understand and appreciate that many of them may be frustrated why they are not getting the prices that they wanted to have, but this is not reflecting. We need to deliver sustainable return. We need to build up resilience in our business with the appropriate level of risk reward when we price our balance sheet and our credit. So I have to say that I -- when I look at our expected outflows, as a consequence of the merger, we were expecting more to lose more clients, and I'm very happy that despite the fact that the team has been very busy in managing the integration, we kept the vast majority of the relationship and clients with us. And very soon, when people are going to be able to focus on growth, I'm pretty convinced that we're going to be able also to show the benefits of the full -- of our full franchise and a new platform. In terms of that kind of assumptions, as you know, better than I do, being on the reporting side of the equation, I have a tendency myself, not really to believe everything I see written on newspaper. So please -- I can only assure you that when we manage this process of redundancy, which is painful, we do it with a one thing in mind. We are one team, one bank as of March 2023, but more so as of June 2023. Many -- remember that Credit Suisse started itself, a massive cost reduction and head count reduction. So that one was ongoing and would have happened in any case. So in a sense, it's quite natural that you have a skew at the very beginning of the process that may be higher on Credit Suisse. But when I look at numbers, and we're not going to engage in public discussion about these numbers, I can assure you that the outlook is very balanced because it's driven by meritocracy. So anecdotal situations of single situations making an headline doesn't necessarily then reflect the true of what's happening. We are very focused to treat the people fairly. It's a painful exercise, and this kind of speculation are just unhelpful, but I mean, I guess, are part of the game.

The next question comes from the line of Ariane Luthi from Reuters.

I have two questions. The first one is on yesterday's hearing in the U.S. Senate Committee on the Barofsky investigation. How do you assess this process? And are you taking any kind of action or preparation in advance of the release of the report this year? And the second question is on the AI triggered sell-off, especially for software and services firms that we've seen since yesterday. What do you make of that? And how are you helping your clients navigate this?

Well, we feel about it. First of all, let me tell you that I'm very pleased and I'm proud on -- with -- how Barbara and Rob handled that session. I mean it was not necessarily a very challenging and very confrontational environment, and they managed the discussion professionally and with a fact-based points, which was reflecting that we were there to basically talk about a legacy matter that we narrated from Credit Suisse, and that we are now helping to resolve by giving as much transparency as we can with substantial effort that we are doing in terms of time and money that we spend for this investigation, including the people that are there advocating that are definitely somehow conflicted in all these stories. Now the issue is that we will continue to do so. But one thing that we cannot do is to go into reaching the law. So if anybody thinks that we should do more, we may be able to do more, but the law has to change. We cannot go through panel criminal actions and putting the firm or people in criminal in a legal danger zone because people want to have data. So we need to be able to do that. And if the law doesn't change, there's going to be a limit on how far we can go. We now got to wait and continue to collaborate and sustain the investigation until it's over. And there is nothing more to do for us, to be honest.

The next question comes from the line of Margot Patrick from Wall Street Journal.

Sergio, first, I just wonder, can you tell us if UBS is going to look at its own archive as far as not business because looking at the Berger report, there was virtually 0. But now we found 900 accounts at Credit Suisse. So it just seems like kind of unlikely that there wasn't some at UBS. And second, I just wonder if you could talk a little bit about the trajectory of the net new assets and how you get to the CHF 200 billion target.

Margot, I'm not going to respond to this provocation and assumptions that has no merit. There is no indication that we had anything at UBS. And this is not a UBS matter. This has to do with a Credit Suisse legacy matter. So -- what is the second question, sorry?

It was about the net new asset trajectory to get to the CHF 200 billion a year target.

Margot, so on the bill to 200, I think it's important to recognize that the CHF 100 billion guidance that we had in '24 and '25 was a function of a number of flow headwinds that we needed to work through. And each quarter, I took the market through what they were and the progress that we were making. And we always said, by the end of 2025, we would have worked through the majority of those headwinds, and that itself will be a basis to see our net new assets growing to where we think they'll get to by 2028. And so we stand by that. And so some of the headwinds that we needed to work through with the balance sheet optimization work, I talked about that on today's call that we had completed, and you could see that come through in much higher revenue over RWA margins. Also the win back that we had -- win-back campaign that we had on assets, giving rise to a significant level of fixed-term deposits back in 2023 to stabilize the Credit Suisse platform and then ultimately had to land those. Those are examples of the headwinds that we talked about. So with those now complete and in the rearview, we don't have the tailwind -- the headwinds weighing on our ability to drive NNA higher. So that's how we look at it. And that's why we -- as Sergio mentioned on the call, we would expect to see net new assets around CHF 125 billion, growing from the CHF 100 billion in 2026, and we take it from there.

The next question comes from the line of Daniel [ Zula ] from [indiscernible].

Yes. I also have two quick questions. The first one is the more simple one. It's on the capital situation and this famous equation, the CHF 26 billion that we were told you need to build up over the next few years if the Federal Council imposes its plan. Now we -- as far as I can tell from the latest figures, we are down at CHF 21.5 billion, i.e., it's CHF 26 billion minus CHF 4.5 billion. And I would like to first understand whether this equation is right. And in case the things proceed as they have done in the past, you could probably be in the range of CHF 10 billion within 2 years or something, if my calculation is right. Maybe you can elaborate a bit on this? And the second question is also on the hearing yesterday. As far as I understand, which created quite some upheaval as your request to Judge Korman to forbid to some parties like the Simon Wiesenthal Center to actually publicly promote solutions to this situation and ask for more -- for an additional payment after the 1999 Holocaust settlement that I would invite you to comment a little bit on your legal strategy there. And also, I didn't perfectly understand your point about laws that have to change in order to help you to be more effective in assisting the solution there.

Right. Let me try to go through that. First of all, as I don't know how many times we have been saying that, and Todd mentioned it during the analyst call, the fact that we are quicker in repatriating capital, it doesn't mean that, that amount of capital was not computed when we were assuming and calculating the CHF 26 billion. So it's a very, very, very simple equation. So your calculation and your assumption is wrong. So you cannot deduct it because this is money that we were expecting to come back but at a later time, probably during 2026 or even 2027. The pace at which we were able to take down noncore -- the noncore assets and restructuring the balance sheet of the firm and the good collaboration and with foreign authorities allowed us to repatriate capital sooner than we anticipated. So there is no double counting. There is no low-hanging fruits. And for sure, has nothing to do with the fact that we're going to have to build up the CHF 26 billion of capital that we outlined back then under the assumptions that we used at that point in time, of course. So I hope I clarify that point because it's very dangerous to double count money. So this is not. Now in respect to the second topic, our request to Judge Korman was only in respect of confirming the scope of the 1999 settlement, which, as you know, has been quite comprehensive and was meant to close the chapter on any kind of liabilities by Swiss banks, and particularly in respect of UBS and Credit Suisse. What we are doing is that we are collaborating heavily and investing money to allow further through to emerge or new data to emerge. And to the extent possible, we are doing that. And you saw yesterday, our outstanding there to respond for a legacy matter of Credit Suisse was a testament of our commitment. Now as we discover new paper or we have new paper, some of them can be shared with the investigating people, some others are subject to restriction of privacy and confidentiality that if released to third party, would be a breach of law under Swiss law. And this is not something that we are prepared to do without a clear pass by the appropriate authorities, I don't know, I mean, change in the law has to be triggered. So we cannot do unlawful actions and make ourselves then liable. Our people, myself, my colleagues in the Executive Board and institutional lead bank cannot take on an additional risk to be ensued by parties that will accuse us of breaching privacy laws. So our legal strategy is very clear. We want the legal framework that was used in 1999 to close that chapter. And if we want to go deeper into what happened in history, more than happy to collaborate, but we need to be protected. We cannot do it without that protection.

Why is the public promotion of the case from parties like Simon Wiesenthal a problem for you?

What do you mean is a problem?

Well, you are in this famous letter to Judge Korman, you are explicitly asking the judge to forbid the promotion of these parties actually.

Because these parties are trying to reopen a matter that was closed and settled in 1999, which has nothing to do with discovery of the truth. This has all to do with potential claims that they want to put in place. So again, you may want to have your opinion about matters, but don't put words in our mouth. We want, as far as we can, to help the truth to be known in the marketplace, and we are not against anything that goes into that direction. What we are against is reopening a matter that has been closed, of course, back then in 1999, where we did a comprehensive settlement, and the judge that made that decision is the one that is more appropriate to make an assessment. If we believe that whatever happen right now should be treated as any particular new information or should be treated as part of that settlement. So we are just asking the same person that made that judgment to judge. So I would reverse it. Why do people have a problem with that? If a judge is not a UBS representative making that decision. It's a judge.

The next question comes from the line of Myriam Balezou from Bloomberg.

I just have two very quick questions. The first one is around the O'Connor sale. So there was a loss that was booked. And I just wanted to -- I wonder if you could just walk me through what it means? Does that mean that the business carrying the value was higher than the purchase by Cantor? Just trying to understand the accounting here. And then the second question is around the U.S. business and the attrition. I was wondering if you're hiring to get AUM back up? Does that mean that the progress that you've made in reducing costs will now be reversed?

So on the loss, yes, that's what it means that the proceeds that we received was less than the cost basis ultimately. But the difference from what we disclosed in the beginning or middle of 2025 versus where we ultimately came out was just a function of a change in the sale perimeter resulting from some of the events that happened at the end of 3Q into early 4Q. In terms of the U.S., the FA attrition and the work that we're doing around -- all the work that we're doing to improve pretax margins, I think it's important just to reiterate that we said that the changes to the compensation grid were among the changes that we introduced and considered necessary a year ago to improve the pretax margin in the business and sustainable profitable growth. So the -- we expected that there would be some adviser movement as a result. We're seeing that. We're still working through that. But how we're working through it will not impact on the pretax margin in terms of cost to achieve that outcome, no.

The next question comes from the line of Steve Slater from IFR.

I had a question on Global Banking. It just seems you're a little less confident of achieving the aim of doubling revenues compared to 2022. So can I just ask where is that going well? And where could it do better? And do you need to step up hiring in any areas to sort of reach that goal?

Thank you, Steve. Can you explain me why are you coming to that conclusion?

Well, I think in the past, you were talking about doubling in 2026 and now you're saying on an annualized basis at the end of the year. So it just seems you pushed it back slightly, but I may be misreading that.

Well, obviously. But I guess I understand the point, but I think directionally, we are quite confident. When I look at our 2026 pipeline and I consider current market conditions, if they persist and also looking at the last 6 months trailing, our market shares in the areas where we want to expand our market share, which is not the full M&A fee pool, right? So -- and it's not the full capital market fee pool, but it's very selective. We feel confident that we can achieve that. So I think that it's a very competitive marketplace, but the momentum is still there. And as I said, the pipeline is building up nicely. But the real question I have is more around the feasibility of the execution of this pipeline because of volatility and market condition than it is, but this is applicable to all our peers. So it's not an idiosyncratic issue. So what is the market condition. And of course, like last year, you remember, we had a very promising outlook for the first quarter of 2025, and it turned out to be one of the worst quarter on record in respect of execution and for sure, when compared to the pipeline or the expectation. So we remain confident that this is something that we can achieve in a good way also because there is a good diversification between sponsor-led transactions and corporates, strategic M&A, IPOs. We see also a constructive environment in -- with institutional investors looking at IPOs. So I would say we are definitely -- we haven't really changed that kind of view.

Last question for today comes from the line of Oliver Hirt from Reuters.

The first one is, would it be fair to assume that the bulk of your layoffs in Switzerland, the 3,000 people, is coming in the second half of this year? Then secondly, could you say how -- your FTE number a year from now, how much will that be? How many employees will you have a year from now? And finally, could you give an indication of the size of the bonus pool for last year?

So in respect of the reduction in force will start already in the first part of the year. Of course, it's going to go probably more into the second half of the year. What we still do is we really look at every single opportunity to manage this reduction in force vis-a-vis our attrition, and to the extent possible, to try to minimize any implication on proactive redundancies. So we were able, last year, for example, to fill 2/3 of the open roles that we had business needs by redeploying people that were probably due to be reduced in force, so by re-skilling and retraining. So we're going to continue to do that. But yes, probably it's going to be more towards the second part of the year and early part of 2027. We are not giving a head count. We published our head count at the end of each year, but we don't give guidance on overall headcount. We are managing costs. We are managing a broader spectrum of KPIs. And on a quarter -- every quarter, you will see how we progress on that. And for the last questions, you have to wait the release of the compensation report.

But probably more than last year, that would be correct, I guess right?

Yes, you will find out -- you will find out when we publish.

Thanks again for joining this call. If you have any additional queries, please reach out to the media relations team as usual. And with that, we'll close the call. Have a good day.

Ladies and gentlemen, the media Q&A session is over. You may now disconnect your lines.