UBS Group AG ($UBSG)

Right. Good afternoon, everyone. I'm pleased to be joined today by Todd Tuckner, UBS' CFO. Thank you for being with us, Todd.

And let's start with the polling question. So what do you think will be the primary driver of share price performance for UBS in 2026? We have a few choices. So clarity on capital, which hopefully is a few weeks away, earnings upgrades, wealth management inflows, U.S. or Asia and new additional buyback in the second half or macro driven? A very clear skill, fantastic. We will get there shortly. Or shall we comment first given there is such a clear -- so we're -- let's start with capital. We are nearing the end of the too big to fail. At least in April, we should get some sort of proposal. So what can you tell us?

Well, look, Giulia, first of all, thanks for having me, and hello, everyone. For sure, on the issue of capital reform, we have been advocating pretty consistently for outcomes that are internationally aligned, targeted specifically to the Credit Suisse issues and proportionate. And in fact, that was the tenants outlined by the Swiss government itself when it developed a framework for financial stability reform 2 years ago. Unfortunately, when the proposals were issued in June of last year, they were sort of none of the above. And as a result, they -- if those proposals were adopted as currently worded, we believe it would make us a pronounced outlier versus peers in terms of the level of capital and equity that we would have to hold. So we've been clear on our position, particularly through the consultation process where proposals were sought on the various issues. The -- we'll know in a couple of weeks, as you say, or at least in a few weeks, what the capital form (sic) [ reform ] has in store for us. for sure. So -- but in the meantime, we continue to advocate for a better outcome. In terms of what the potential impact would be just last week in our annual report, we had disclosed that the potential consequence of the current proposals would be a capital increase of around $22 billion. When the proposals were first tendered last spring, we had indicated the impact would be $26 billion. That delta -- again, assuming that we maintain our target capital ratio at the parent bank, that delta is really owing to the significant capital repatriation we were able to achieve over the course of 2025, that's always been planned to bring that capital back. Indeed, that capital is sitting at that first-tier operating subsidiary, our parent bank at the moment, just given the dollar softness relative to the Swiss franc that we've seen over the last year, which has informed a degree of leverage ratio constraint at the operating subsidiary level, and that's effectively caused us to leave some of that upstream capital there and has driven the capital ratio higher. But indeed, the -- as far as what our expectations are, we continue to advocate for a more moderate outcome.

And if I can follow up then on capital, talking about capital distribution. $3 billion share buyback was announced, and there are $9 billion upstream -- accrued to be upstreamed, which I think would leave room for another $2.5 billion buyback in the second half. How should we think about the potential for more capital distribution in the second half?

So Giulia, we committed to do a $3 billion share buyback. We're out doing that at present. We said we aim to do more, but the aim to do more in 2026 really is a function of further visibility on capital reform as we've just been discussing, we should see sometime in the second quarter. What I would highlight is that if you consider the $3 billion commitment to share buybacks that we've made for 2026, plus the dividend that we're accruing for, which would be -- we've indicated a double-digit increase on the '25 dividend. We're approaching $7 billion of capital returns in 2026, all told. And if you recall, post the Credit Suisse acquisition, we said that our ambition in 2026 was to return as much capital as we did in 2022. And at around $7 billion, even before we upgrade any of our share buyback ambition depending on the shape of the capital reform, we're already in striking distance at that level.

Perfect. So now having covered the capital topic, let's go to some of the hot topics of today. There is a very volatile geopolitical environment at the moment with the war in Iran. How are your clients navigating this uncertainty? How is this impacting your business so far in Q1?

Yes. So I would say if you look at our private clients, at this stage, given the geopolitical developments of recent weeks, I would say our clients remain engaged and active, but cautious on the private client side. On the institutional client side, I would say, engaged and active just given if you look at, for example, equity index volatility being high and even single stock volatility being even higher and that creating a quite high degree of dispersion that has been supportive of, in particular, our trading desks. But it's important to highlight, of course, that the market seems to be pricing in more short-termism still around this conflict. You could see that in the equity markets. You could actually see that more clearly really in how the bond markets have behaved more pricing in inflationary shocks and potentially giving central bank's pause to easing. But you haven't yet seen impacts that would suggest there's a real growth issue. I think if the tensions were to persist and you move away from what are being priced that is inflationary shocks to something that really starts to weigh on growth, then I think that could really be a game changer in terms of how we would be advising clients, but also just the level of activity in the market.

Perfect. And you mentioned it helps trading desks. Any comment on Q1?

Well, I think for our markets business in the Investment Bank, the -- coming into Q1, the markets were -- continue to be constructive and supportive of our business doing well with the geopolitical environment sort of changing acutely, if not -- certainly at least moderately, if not acutely. As I said, we're still seeing conditions that are supportive of our markets business. But again, it's something that we need to clearly watch.

And if I ask you about another hot topic, private credit, credit spreads have been widening. We receive a lot of questions from investors on bank's exposure to BDCs, how exposures are structured, how senior and secured the bank's exposures are. So what can you tell us here from UBS point of view to reassure investors?

Well, as you know, Giulia, and I'm sure everyone here appreciates banks leverage to private credit, right, typically comes by dint of lending to private credit funds. You mentioned BDCs. These exposures tend to be senior secured, referencing diversified pools. So perhaps the views from other bankers are that perhaps there's not yet anything to see here. I would make 2 comments. One, the vast volume increases we've seen in bank lending to private credit funds since COVID, which where volumes have probably upwards have tripled, we haven't really seen a true turn in the credit cycle to really test those volumes. So that's one point I would make. Certainly, if there is more systemic stress in that environment, given the interconnectivity between banks and nonbank financial institutions, you could start to see perhaps some pressure points. I believe that's the case. But whether we're seeing systemic stress, I think people would suggest at the moment, no, it's not systemic. It's maybe more at this point, one-off as opposed to something that would suggest there's a real issue, but it clearly bears watching. In UBS' case, though, I would say our exposure to private credit funds, I'm quite comfortable with. If you think about the total volume relative to our total leverage exposure, it's about 0.5% of our total balance sheet in terms of our lending to private credit funds. That exposure is senior secured. We have low LTVs or conservative borrowing basis as the case may be. And I'm comfortable with the level of exposure that we have.

Perfect. And sorry, just to quickly follow up. Private credit within your asset management business instead, what are you seeing there?

Well, I think private credit is an important part of our investment management space, certainly in terms of our fund offering. We have, for example, in our credit investment group, I mean they have largely sub-investment-grade exposures into private credit. And that's an asset class that's heavily sought after and it has been and continues to be even in the current market. Demand is strong. But no concerns in terms of -- at this stage in terms of our investment funds and their performance in respect of private credit. But as I mentioned before, I think we need to be clear-eyed about to the extent it becomes more -- there's more systemic relevance to this. Again, there is an interconnectivity that between banks and the nonbank financial institutions that can be tested.

Perfect. If I now turn to artificial intelligence. How worried should we be, in your opinion, about how AI can disrupt the wealth management business?

So I don't think AI certainly, for sure, won't diminish the value of advice. I think what it will do is it will be disruptive. And to many industries, but not least to wealth management, I believe it will be disruptive to wealth management. But I think it's important to unpack that. It will create -- AI will create a lot of improved adviser productivity. And what I mean by that is the tools that banks and talking the first person that we're investing in a UBS will make advisers and are making advisers decidedly more productive. So less admin time, more client time, more personalization, faster response times to clients. So those are quite positive. It's also quite important in an environment where more digitally native clients will, over time, inherit or exceed to wealth. And I think this is critical in terms of the way to serve. Now on the higher end of the wealth spectrum, really where we play, I do believe that characteristics like trust and judgment and risk discipline and just the overall stewardship of the client relationship will remain important. And while it may be "disrupted", I certainly think that for a bank like UBS, we could still differentiate ourselves in that respect. But here is really the key point. that I believe that if you're clear-eyed about what needs to be done across the whole value chain, which not only includes investment in tools to support the advisers themselves, but the entire front, middle and back, then I believe that there is a lot of efficiency that can be achieved by banks investing as we are. And in doing so, even if clients ultimately endure to a lot of that -- a lot of the benefit of AI investments and a lot of the benefit of the efficiencies, not least because there are more entrants to the market that therefore, put pressure on price and top line margins, I believe a bank like UBS in Wealth Management can continue to generate quite attractive pretax margins by dint of the efficiency gains it gets front to back.

And if I stay on AI, but more general beyond GWM, Sergio mentioned on the Q4 call that UBS is investing in a portfolio of AI programs. So what can you tell us about these and the progress you're making there?

Yes. So Giulia, if you think about each quarter when I talk about the synergies that we're seeking to achieve from the Credit Suisse acquisition on a gross basis. And then I also show the net saves that are visible in our underlying OpEx. One of the big reconciling differences between gross and net is our investment in technology and in particular, in artificial intelligence. And we've really jumped into this with both feet, notwithstanding our focus on the integration of Credit Suisse. Let me offer you some examples. So I mentioned the investment we're making in tools to support advisers and adviser productivity. But I also said what's critical is what happens front, middle and back. And so one of our large initiatives is to enable AI to automate and control the most expensive parts of the client life cycle. So things like account opening, you know your customer, any kind of account changes. These things that are often done manually and often are quite time consuming, not just in Global Wealth Management, but across our businesses is something we're investing heavily in because we believe we can automate that very important part of the value chain. But on top of that, we're making significant investments in other things. I'm sure like many banks, completely looking to rethink and reimagine software engineering, so making it much more productive, faster and efficient. And just given the level of development and engineering costs that we incur, that's a significant game changer. And then looking just in the middle office and the back office, just rethinking the processes in operations, in compliance, in credit risk and in my own function in finance, using AI to really upend the processes, make them much more efficient in the end, and I believe will contribute again to us generating attractive net margins despite AI potentially in the marketplace placing some pressure on top line margins.

Very helpful. Let me see if the room has questions for you. Otherwise, I can carry on. Okay. Let's give the room another couple of minutes. In the meantime, I will ask you about GWM again, but in the U.S. The strategy for U.S. GWM was announced about a year ago. So how do you measure the progress that you've made so far?

So in terms of our Wealth U.S. business, it's really -- let me just reiterate that, that is a very important, if not a cornerstone of our overall global Wealth Management franchise. And as well, the Wealth Management business in the U.S. is a critical part of our overall U.S. business, which is very significant to our group strategy of growing in the U.S. So we continue to invest in our Wealth U.S. business to drive growth, to improve pretax margins and to narrow the gap versus peers. Now we are clear-eyed on the gap versus peers. And it's one of the reasons that we have set out this multiyear plan, as you mentioned, to drive pretax margins higher. In 2025, we improved pretax margins by 3 points year-on-year. So we think that there's evidence of success in what we're doing, but we still have a ways to go. So what are some of the things that we're focused on? Number one, really leaning into the collaboration with the investment bank to drive an important transmission channel of CIO advice of specialized advisory services of structured products and capital markets to our wealthiest clients in our U.S. wealth business in collaboration with the Investment Bank. That has been a differentiator when you look at transaction-based revenues in the U.S. business. It's also, by the way, have supported Global Markets and the Investment Bank as well. Secondly, we're investing in our platform in the U.S., our coverage models, our ability to distribute product seamlessly across the field. And that's resonating with our client -- our financial advisers. And in turn, that's improving the client experience. Third, we recognize the importance of improving banking, in particular, our -- the NII penetration or net interest income as a percentage of total revenues is such a critical part. If you think about what really informs a gap versus peers, it is a distance in terms of net interest income as a percentage of total revenues. So again, we're very clear on the need to improve our banking capabilities, and we've been investing heavily in those. The feedback from advisers has been great. We've had 7 consecutive quarters of net new lending growth. So we know that it's working. We -- as I think you know, Giulia, we have conditional approval for National Bank Charter, which we also believe is fundamental. And that will add to the momentum once we move forward with that. And then the last point I would make is it was really important to us to improve the operating margins or the operating leverage in the U.S. wealth business. And so we've been very focused on and disciplined around costs. And that even includes financial adviser compensation and the way we incentivize advisers to be aligned with our strategy of growth in the U.S. We recognize that those changes have had an impact on adviser movement, but we're working through that. We've been aggressively recruiting, and we're looking to turn the tide on net new money outflows in relation to that particular topic. But we're confident in what we're doing. And in fact, last month, when we talked about our -- during the investor update in talking about the business, we upgraded our targets. We brought our targets in, accelerated them by a year. We're now looking in 2026 to generate a mid-teens or a 15% pretax margin. And we indicated our ambition is to do high teens, around 18% by 2028.

Very clear. And if I now move to the other side of the world, Asia, where you have a leading franchise and you want to grow, you are talking about hiring more financial advisers. So how do you see the competitive landscape and the growth opportunity in Asia?

So in APAC, our growth and our performance reflects our standing as one of the preeminent wealth managers in a critical growth market for us. We're looking to build on that and reinforcing our strongholds in our Singapore and Hong Kong locations. But we're also leaning into growth markets and very focused there across Southeast Asia, Taiwan, Japan, India, Australia, to name a few that we're quite focused on. We're looking to gain market share there in those jurisdictions. We're investing in our feeder channels, and we're looking to hire up advisers as well. One important growth aspect that's relevant across GWM but also in APAC is doubling down on our foothold in high net worth. We think this presents for us a great growth opportunity. And so we're very focused on investing in service models, enhancing our service models in the high net worth space, we're also looking to -- through strategic partnerships to gain market share as well and to also hire some preeminent high net worth advisers as well to support our growth. So -- and also, I should mention the digital channel is quite important that through building out digital, we do expect that, that will be accretive to net new money and net new client acquisition. So we're quite focused on leveraging our strength in APAC and growing from there.

Excellent. Let me check if there are questions from the room. Okay. A very busy but quiet room for now. So Investment Bank, you achieved the 15% return target in 2025. How do you feel about maintaining these returns or improving as the Credit Suisse consolidation comes to an end?

Yes. So Giulia, I mean, in the Investment Bank, we're continuing to invest in our capabilities and generating sustainable returns for our shareholders. We have a very strong -- if you look at our -- we're very well diversified across the globe. We have top franchises in Asia, across Europe and in Switzerland. And we've really strengthened our presence in the Americas. And by the way, Credit Suisse has been a real boon to the diversification and the resilience of that business. We talked a little bit about global markets. I expect global markets, again, notwithstanding my caution about the current geopolitical environment, but in the current market conditions to continue to do well, leveraging its top equities franchise, but also in FX and precious metals and also reinforced by our global research capabilities. In our banking franchise, we've invested in our coverage teams in our product capabilities and that's adding to an already robust pipeline. And I expect Global Banking to continue momentum into 2026. I mentioned earlier in the context of the Wealth U.S. business, the fact that the collaboration between Wealth Management and the Investment Bank for us really is a differentiator. It is not a sound bite, but it really is how we go to market. And I think that continues to be a differentiator for the Investment Bank as well as for Global Wealth Management. And so that gives me confidence in our ability to generate a 15% pretax return on equity through the cycle. And I should mention doing that also with the IB consuming no more than 25% of the group's risk-weighted assets.

Very clear. And if instead we move closer to home to Switzerland, that business at the moment is a little bit challenged by rates at 0 and also the migration. So what gives you confidence in achieving the below 48% cost income target by 2028, especially given that I understand you don't plan to reach the below 50% exit rate for this year?

Well, first, I would say it's important to mention that just this past weekend, the team began the final switchover of clients in the Swiss booking center, which just in the coming days here will be complete as we go through our final checks. So that completes -- with that done, that will complete the entirety of the client migrations that we've had from Credit Suisse platforms on to UBS platforms across the globe. And in this particular case, in Switzerland. Now that is super important for a few reasons. One, the management team of the Swiss business, including Personal and Corporate Banking in Switzerland, but also Global Wealth Management in Switzerland. It frees up immense amount of management time that has been focused on clients, but focused in a way to ensure a seamless transition to this account migration. And you could see that in the evidence of minimal disruptions despite this being one of the most complex migrations in the banking industry. And you could also see that in the level of retention that the business has been able to achieve. It's also important that now that our clients will be on a single platform, that focus on the business can be now recalibrated to focus on book transformation and focusing more so on helping clients generate healthy returns in their portfolios. So it's not just the business of the migration, which has been quite significant, but we get back on our front foot, and we're able to drive net new client acquisition and overall growth in the business. And the last point I would make why this migration being completed is so important is it then turns the page and allows us to focus on the last stage of the whole integration process, which is decommissioning and dismantling the entire Credit Suisse platform, particularly in Switzerland, by far our most expensive. I've talked about the overall cost of running that is upwards of about $1 billion a year. So to be able to take that out is quite is quite important. Now you mentioned, Giulia, the rates environment. And clearly, the rates environment has had an impact on net interest income for the P&C business, by far, its most important revenue line. But given -- and by the way, the outlook on that with some of the recent geopolitical developments and the broader macroeconomic uncertainty that Switzerland and other countries in Europe have been facing for some time, the rate outlook is a bit mixed. We're seeing now some more vol in the rate outlook, at least from an implied forward perspective to suggest that there'll be movement in the rates. I've said in the past, there's positive convexity in that in so far of rates either moving negative or positive is actually helpful, but it's been in that sort of dead zone of just the 0 policy rate for some time. But even if it were to stay at that level, and that's the way we have to think about it, one, we expect double-digit profit growth in 2026 even if rates stay at 0. And while we may fall just short of our underlying cost-income ratio target of 50% at the end of 2026, because of NII being a bit challenged, notwithstanding, we believe by 2028, we can generate a cost-income ratio of around 48%, even with interest rates staying at 0. Why and how? Because of the points I mentioned earlier in terms of getting back on our front foot, generating non-NII revenue growth, but also being clearly very cost disciplined and also having some of the investments in AI I talked about and digital assets enhancing the cost-income ratio for P&C when I look at the outlook.

And if I ask you about Asset Management. This division has delivered very well ahead of schedule on cost income, but also on asset growth. So if we look forward, is the 3% the right the -- in the new money, the right benchmark for this business? Could we expect more?

That's fair. I mean when I look at Asset Management, so I appreciate the comment about the operating leverage that they have generated. They have done a great job reducing costs while at the same time, integrating Credit Suisse onto the UBS platforms. They actually met their end 2026 goal a year early in generating below a 70% cost-income ratio on an underlying basis. They've also been quite focused on sharpening their product offering. If you look at the business, we're a global top 5 limited partner in alternatives. And so that gives the business along with Global Wealth Management, the scale to be able to offer quite attractive investment opportunities to our clients across private markets, hedge funds and real estate. So that's a key part of their offering. But they also have deep traction in the ETFs and indexing in our credit investments group and also in our SMAs that are delivered -- designed and delivered jointly with Global Wealth Management. So with that product offering that we think is quite robust in addition to the efficient way in which the business is run, we look to continue to drive growth. And indeed, we have an ambition of a 65% cost/income ratio by 2028 as we articulated last quarter. But on the -- in terms of net new money growth, I also think that when I consider the array of opportunities and the product shelf that the business has, I do think 3% net new money growth through the cycle is an appropriate benchmark and ambition for asset management. Why? When I step back and look at the collective set of secular trends across the industry, I think that a 3% growth rate is sufficiently ambitious, and that's why we've asked the business to focus on that as their target.

Great. And if we move away from the divisional discussion and think about the end of the integration, we are 9 months away pretty much from it. You mentioned it earlier. So is there anything in your mind that could perhaps derail the decommissioning or you have high confidence on that? And also related to this, how does the gross cost savings target translate into net? And is there upside on achieving the cost savings?

Yes. So if I harken back to 2023, when I started devising as group CFO, my first plan with Sergio at the time, and we were sort of playing all of this out through the end of 2026. We've been consistent on our expectation was that we were going to finish the Swiss booking center client migration in the first quarter of 2026. I mean that was the plan in 2023. And we have been -- I mean, I think each quarter, we've been very clear. Hopefully, the market has seen it that way in terms of the things that we've had to do and what we have been doing to achieve that. So we're at that point. So now we have the rest of 2026 to decommission and dismantle all of the infrastructure, the hardware and the software and the data center supporting, in particular, the Swiss booking center. So we have the optionality because we're on plan, on target. Of course, we have to do the work, and we believe it's going to take the rest of 2026 to finish that work and really unlock. When I talked about close to $3 billion of gross cost saves in 2026 to deliver, a fair part of that relates to the Swiss booking center. And so that's going to take the time. In terms of the gross versus net, I mean one comment I would make is that when I go harken back again to 2023 and think about the way we thought about gross cost saves and what would hit through as a net save and effectively inform our underlying cost-income ratio as we exited 2026, we made certain assumptions about investments. One thing I will say is that, and I commented earlier, we jumped in with both feet on AI. We've been very focused on investing in digital assets as well. And so I would say there's probably been more tech investment ultimately than we probably initially planned. And so for those reasons, I think maintaining our cost-income ratio target at less than 70% by the end of 2026 is appropriate, and we're going to need the whole year to achieve it.

Clear. You have mentioned now a couple of times digital assets. And Sergio also made some remarks in Q4 around UBS looking more at tokenization as a secular trend and looking at tokenized deposits. Can you tell us what are the key initiatives here that UBS is working on? And how do you think this can impact the business and the industry?

No, we're certainly developing the modern infrastructure and helping to develop that in Switzerland, where we've rolled out UBS Tokenize, which is effectively institutional-grade tokenization of real-world or traditional assets such as bonds, funds and structured products. through their life cycle. And so that's something that is live. We're also developing and have proofs of concept of what we're calling UBS Digital Cash, which is tokenized deposits, particularly for institutional clients to support real-time 24/7 settlements and payments. So for us, we think digital assets will improve liquidity, market functioning and also collateral efficiency. And we're taking part of that, and we believe the market and the regulator appreciate that, that's coming behind a trusted bank like UBS.

Very interesting. Thank you. And we might have time for one last question from the audience, if there is any. No. Otherwise, Todd, thank you very much for your time today.

Thank you very much. Thanks, everyone.