UBS Group AG (UBS) 2015 Q1 法說會逐字稿

Ladies and gentlemen, good morning.

Welcome to the UBS first quarter results 2015 presentation.

I'm Moira, the Chorus Call operator.

(Operator Instructions).

The conference is being recorded.

At this time, it's my pleasure to hand over to UBS.

Please go ahead.

Good morning.

It's Caroline Stewart here, Head of Investor Relations at UBS.

Welcome to our first quarter results presentation.

This morning, Sergio will take you through the highlights of the results and Tom Naratil will take you through the details of the results.

Before I hand over to Sergio, I'd like to draw your attention to the slide on our cautionary statement regarding forward-looking statements, and I'd ask you to read it carefully.

With that, I'd like to hand over to Sergio.

Thank you, Caroline, and good morning, everyone.

While the first quarter is typically the strongest of the year, our results this quarter are exceptionally good.

We reported adjusted pretax profit of almost CHF2.3 billion and net profit was almost CHF2 billion.

And results were strong across the board, with all our business divisions performing well.

Our Basel III fully applied CET1 ratio also rose to 13.7%, so we remain the best capitalized bank in our peer group.

The results underline that our business model works, and our approach to thinking long term and acting early is paying off.

From a macroeconomic and market point of view, the first quarter was more demanding than a typical year, but we were prepared.

So while our results for the quarter are very good, and I am confident about our momentum, like we said at Q4, we wouldn't multiply any quarter results by 4.

Turning to the business divisions; together, our wealth management businesses delivered the highest profit since 2008 and made solid progress with their strategic initiatives, to grow lending and increase mandate penetration.

Wealth management had its best quarter since 2008 in terms of profitability.

Net new money was very strong, even for a first quarter, and was achieved without compromising our profitability standards.

Wealth management Americas delivered another record profit before tax on its highest ever invested asset base, and attracted solid net new money.

Despite a very challenging macroeconomic environment, retail and corporate delivered its best first quarter in five years.

Global asset management also posted strong results and robust net new money.

The investment bank deserves applause, not only for its excellent performance, with a pretax profit of CHF844 million, but also because the results were delivered without increasing our risk profile, and while remaining within the allocated resource limits.

This is a very important point to consider when assessing our results.

Our strategy focuses on areas where we excel and it's well suited to the high volume and volatility environment we saw in Q1.

Our strategic cost reduction program is ambitious and I am pleased with the progress we are making in its implementation.

While improving our efficiency and effectiveness is a top priority, short-term dynamics will not change our plans, as this would impact our ability to deliver long-term sustainable growth.

Tom will now take you through the details for the quarter.

Thank you, Sergio.

Good morning, everyone.

As usual, my commentary will reference adjusted results unless otherwise stated.

This quarter, we excluded net restructuring charges of CHF305 million; an own credit gain of CHF226 million; gains on sales of real estate of CHF378 million; and a gain of CHF141 million on the sale of the subsidiary in wealth management.

The net effect of these adjustment items is an accretion to capital of around CHF150 million in the quarter.

An overview of these adjustments can be found on page 15 of our first quarter report.

Profit before tax was CHF2.3 billion, up from CHF514 million in the prior quarter.

IFRS net profit attributable to shareholders was nearly CHF2 billion, and adjusted return on tangible equity was seasonally high at 14.4%, ahead of our full year target of around 10%.

Net profit attributable to non-controlling interests was CHF61 million.

This primarily related to net profit attributable to non-controlling interests in UBS AG, reflecting the non-exchanged UBS AG shares.

We also expect to attribute net profit of approximately CHF80 million to non-controlling interests related to the preferred notes issued by UBS AG, all of which will be booked in the second quarter of 2015.

Wealth management delivered a strong performance with profit before tax of CHF856 million, up 23%, to its highest level since the third quarter of 2008.

Operating income increased 5% to CHF2.1 billion as transaction-based income rose in all regions, but most notably in APAC and Switzerland.

While transaction-based income was up across nearly all products, the increase was largely driven by seasonal effects, portfolio rebalancing and higher volumes in FX as a consequence of the SNB's actions in January.

Both net interest income and recurring net fees were down due to the stronger Swiss franc.

Excluding the effect of currency movements, recurring income increased on a continued rise in recurring net fees.

This underlying trend gives us even more confidence in our ability to deliver on our key initiatives, as net mandate sales were strongly positive in all regions.

Expenses decreased 5%, mainly due to lower marketing expenses and corporate center costs, as well as favorable currency effects.

This brought the cost/income ratio to 59%, within our target range of 55% to 65%.

Net new money was a strong CHF14.4 billion, the highest it's been in eight quarters.

Mandate penetration increased 110 basis points to 25.5% of invested assets as the business delivered CHF15 billion in net mandate sales.

Both gross and net margin were up on higher revenues and profit before tax, and on a lower average invested asset base.

Gross margin increased 4 basis points to 86 basis points, and net margin increased 7 basis points to 35 basis points, its highest level in over five years.

Marginal transactional activity continues to cause significant swings in trading and commission revenues, resulting in large month-to-month swings in our gross margin, which was 91 basis points in January, 82 basis points in February and 92 basis points in March.

What we've seen in two out of three months in the first quarter shows the potential upside in a more normalized environment.

Net new money was positive in all regions, with the largest net inflows in APAC, which delivered CHF8.2 billion of net new money.

Europe delivered net new money of CHF3 billion, with strong inflows from our domestic business and positive net inflows from our international business, following seasonally high offshore outflows in the fourth quarter.

Net new money was CHF1.6 billion in Switzerland and CHF1.5 billion in emerging markets.

On a global basis, net new money continued to be strong, with CHF10.1 billion from our ultra-high net worth clients and a solid contribution from our high net worth clients.

Of the CHF14.4 billion of net new money delivered in the quarter, only CHF1.8 billion came from increased Lombard lending.

Our net new money is one of many KPIs that we use to monitor our performance and we don't buy net new money.

Surprisingly, we've seen some irrational competition for net new money as some large competitors pay premiums for deposits and these assets.

In contrast to some of these competitors, as we highlighted in our fourth quarter earnings call, we'll be taking action on a number of fronts to optimize our resource utilization, and to ensure that any resource constraints are appropriately priced.

Some of these actions may cause affected clients to withdraw some of their cash assets, thus impacting our net new money.

These exits would result in net new money outflows which we'll exclude from our net new money growth KPI calculation.

While it's unlikely that all assets will be withdrawn, the assets in scope approach CHF30 billion.

We expect the bulk of the liquidity coverage ratio, and leverage ratio denominator relief from these actions, to come in the second quarter, with a slight benefit to come in the third.

Our net new money growth of 5.8% in the first quarter does not exclude any outflows associated with these assets.

Both APAC and Switzerland saw a sharp rise in revenue as transaction-based income increased on higher client activity.

In APAC, we saw strong demand for structured products, particularly related to equities.

In Switzerland, the increase was largely driven by rebalancing and foreign exchange-related revenues triggered by the SNB's actions in January.

Revenues were relatively stable in emerging markets and down in Europe on a stronger Swiss franc.

Wealth management Americas had a record quarter, generating a profit before tax of $293 million, up 26% on lower expenses.

Operating income was $1.9 billion, and decreased from the fourth quarter mainly as there were fewer calendar and trading days.

As a percentage of revenue, recurring income increased to a record 77%.

Expenses were down 5% to $1.6 billion, mainly due to lower FA compensation on lower compensable revenues, and also as charges for litigation, regulatory and similar matters declined from the prior quarter.

Our cost/income ratio was 84.6%, at the top end of our target range of 75% to 85%.

Wealth management Americas' $1 trillion invested asset base continued to grow to record levels on both positive market performance and solid net new money at $4.8 billion.

Net inflows were driven by advisors who've been with the Firm for more than one year.

For the second quarter, we expect to see the typical trend of increased client withdrawals associated with seasonal income tax payments.

We continue to see positive trends in mandate penetration, which increased 40 basis points to 33.9%.

Net margin increased 2 basis points to 11 basis points on lower expenses, which more than offset the impact of a higher average invested asset base and lower revenues, while gross margin was down 2 basis points to 73 basis points.

Invested assets per FA increased to a record $150 million, while our annualized revenue per FA remained industry leading at $1.1 million.

The average production of recruits continued to outpace production of FAs leading, with 77% of our recruits ranked in the first and second industry quintile, compared with 29% of FAs who left.

In general, we've continued to see low FA attrition in the industry and at UBS.

Consistent with our strategy, we continued to grow lending balances with total loans growing 2% to $45.5 billion.

Average mortgage balances increased 2% to $7.8 billion and securities-backed lending balances were up 3% to $32.1 billion.

Although pricing on securities-based lending remains firm, mortgage spreads are under pressure as the industry targets high quality, high net worth and ultra-high net worth mortgage loans.

Retail and corporate delivered its best first quarter in five years, with a profit before tax of CHF443 million, up 24%.

All KPIs were within their target ranges.

Operating income was up 7%, mostly reflecting lower credit loss expenses, but also higher transaction-based income and net interest income.

Transaction-based income was up 4% to CHF284 million, as the volatility in both interest rates and foreign exchange after the SNB's actions led to increased client activity in FX hedging and trading, as well as gains from macro fair value hedge ineffectiveness.

This was partly offset by a decline in credit card-related income, which was higher in the fourth quarter reflecting seasonal holiday activity.

Net interest income increased 2% to CHF568 million, with increases in both loans and deposits as we introduced pricing measures in response to the SNB's policy changes, and as we saw continued benefits from pricing measures we implemented in the prior year.

This more than offset the continued effects of persistently low interest rates on our replication portfolios.

On our fourth quarter earnings, call we noted that if the negative interest rate environment in Switzerland continued, our net interest margin would likely be at the lower end of our target range of 140 to 180 basis points.

Considering today's environment in a constant rate scenario, and if asset spreads hold firm despite new market entrants in the mortgage market, as we approach yearend we would expect a net interest margin that is a bit lower than the middle of our target range.

Following a typical seasonal pattern, net new business volume growth for our retail business was solid at 3.1%, within our target range of 1% to 4%.

Net new business volume for retail clients stood at CHF1.1 billion and was impacted by over CHF0.5 billion of euro-denominated cash withdrawals following the SNB's actions.

Net credit loss expenses were CHF21 million, partly reflecting the strengthening of the Swiss franc in more challenging economic conditions.

At this point in time, we've not yet seen any significant impact on our loan portfolio from a higher Swiss franc.

For the rest of this year, we expect to see more normalized, and slightly increased credit loss expense levels, compared with 2014.

We continue to monitor both the environment and our loan portfolio closely.

Expenses decreased 4% as lower general and administrative expenses more than offset an increase in personnel expenses.

G&A expenses decreased by CHF48 million as the prior quarter included higher investments in multichannel offerings, and as marketing expenses and professional fees declined.

In global asset management, the business delivered its strongest performance in over five years, with profit before tax increasing 50% to CHF186 million.

Operating income was up 3% to CHF511 million on strong performance fees, with a notable increase in O'Connor and A&Q.

This more than offset lower net management fees, which were impacted by currency moves, with the largest effect on traditional investments.

Expenses declined by 13% to CHF325 million on lower charges for provisions for litigation, regulatory and similar matters, and lower allocated costs from corporate center.

Net new money, excluding money markets, was CHF7.5 billion, as we saw strong inflows in alternatives as well as other asset classes.

Net new money from our wealth management businesses was CHF5.1 billion, the highest it's been since the first quarter of 2007.

Investment performance was solid overall with strong performances in O'Connor and A&Q, where over 90% of assets eligible for performance fees were above high water mark at quarter end.

The investment bank delivered a strong quarter, with a profit before tax of CHF844 million and an annualized return on attributed equity of 46%, as all regions generated double-digit revenue growth year over year.

Investor client services delivered its best quarter since the acceleration of our strategy in 2012 on higher volatility, client activity and volumes.

Equity revenues increased 27% versus the prior quarter to CHF1.2 billion, with stronger performance across all sectors and regions, largely on seasonally higher client activity.

On a year-on-year basis, revenues were up 15% with strong performances in financing services and derivatives.

Revenues increased year over year in all regions, but most notably in APAC, where there was a strong rise in revenues from equity finance on higher client activity levels.

In FX, rates and credit, revenues were CHF701 million, up from CHF297 million in the prior quarter and up 71% year over year, reflecting increased client flows and volatility levels across FX and rates, as well as solid results from credit flow on lower risk and research utilization.

In rates and credit, the business maintained high balance sheet velocity in order to meet the needs of our clients.

Corporate client solutions revenues were CHF801 million, up 13% on higher revenues in DCM, ECM and financing solutions as well as higher risk management revenues, partly offset by lower advisory revenues.

On a year-over-year basis, revenues were up 4%, mainly in ECM, on increased participation in public offerings as well as higher revenues from private transactions.

The performance in ECM, along with increases in advisory, financing solutions and risk management, was partly offset by lower revenues in DCM as the market fee pool was down 29%, and as participation in leverage finance transactions was lower.

Operating expenses were up 11% in the quarter on higher variable compensation expenses, partly offset by lower charges for litigation, regulatory and similar mattes, and as the prior quarter included a charge of CHF68 million for the annual UK bank levy.

The cost/income ratio was down 17 percentage points to 68%.

Once again, we've demonstrated that our business model works, with the investment bank delivering excellent returns on attributed equity while carefully managing risk and deployment of its resources.

As Sergio mentioned, this is a very important point to consider when assessing our results.

We've provided this slide to place our results in the appropriate context.

We continue to focus on our traditional strengths in advisory capital markets, equities and foreign exchange, complemented by our refocused rates and credit platform.

The investment bank is an active participant in capital markets flow activities, including sales, trading and market making.

Our model is geared towards client facilitation and flow and volumes explain almost all quarterly fluctuations in revenues.

To support our goal of earning attractive risk-adjusted returns on our allocated capital, we operate within a tightly controlled framework for balance sheet, risk-weighted assets and LRD.

This is evidenced by the stability of our resource consumption, despite the demands from seasonal activity.

Revenue per unit of VaR was the highest it's been since the acceleration of our strategy, and return on risk-weighted assets was the highest in eight quarters, as average VaR remained flat and risk-weighted assets declined by CHF3 billion to CHF64 billion.

We've increased the level of detail in reporting for corporate center and reflected changes in its structure.

Corporate center is now divided into three units; corporate center services, corporate center group asset and liability management, and non-core and legacy portfolio.

Profit before tax in corporate center services was negative CHF222 million, compared with negative CHF261 million in the prior quarter.

This was driven by reduced operating expenses before allocations on lower G&A and personnel expenses, slightly offset by comparatively lower net allocations.

Profit before tax in corporate center group asset and liability management was CHF122 million, compared with a loss of CHF208 million in the prior quarter.

Gross revenues from balance sheet risk management activities were broadly unchanged.

Gross revenues from hedging activities increased significantly to CHF167 million from a loss of CHF63 million in the prior quarter as a result of increased gains from ineffectiveness in our cash flow hedges and gains on cross-currency basis swaps held as economic hedges.

While the accounting asymmetry within group asset and liability management creates quarterly volatility within our financials, the net economic effect is largely neutral as the positions managed within group ALM represent economic hedges offsetting UBS's structural positioning.

Profit before tax in non-core and legacy portfolio was negative CHF240 million.

Operating income was negative CHF80 million, compared with negative CHF361 million in the prior quarter.

The decrease in negative income was the result of greater novation in unwind activity in the prior quarter.

Operating expenses decreased by CHF190 million to CHF160million, on lower charges for provisions for litigation, regulatory and similar matters, and as the prior quarter included CHF52 million for the annual UK bank levy and a net charge of CHF42 million related to certain disputed receivables.

In the first quarter of what is a critical year for our cost reduction initiatives, we made good progress, increasing our annualized cost reduction by CHF600 million to CHF800 million, based on the March exit rate versus full year 2013.

The exit rate captures the annualized cost run rate at the end of March, where it has been adjusted to reflect seasonality for a more accurate comparison against the full year.

For our March exit rate, this was a net upward adjustment to expenses.

Our continued improvement in efficiency is a result of successful and ongoing execution of our outsourcing, nearshoring and offshoring initiatives, continued optimization of our real estate footprint, and other key levers.

While we're pleased with our progress and our effectiveness and efficiency efforts this quarter, we'll need to work hard to offset incremental costs associated with permanent regulatory demand to achieve our net cost reduction target of CHF1.4 billion in corporate center by the end of the year.

Our fully applied CET1 ratio increased 30 basis points to 13.7%, and remained above 10% post stress as CET regulatory capital increased, largely on higher retained earnings, partly offset by the impact of a stronger Swiss franc.

Risk-weighted assets were flat at CHF216 billion, with small moves within the business divisions in corporate center.

We highlighted in our Annual Report that the changes to the applicable discount rate and interest rate-related assumptions for our Swiss pension plan during January and February would have reduced our IFRS equity and fully applied CET1 capital by around CHF700 million.

Due to the sharp change in market and macroeconomic conditions, we carried out a detailed review of the actuarial assumptions.

As a result, we enhanced the methodology for estimating the discount rate by improving the construction of the yield curve where the market for long tenor maturities of Swiss high quality bonds was not sufficiently deep.

Also, we now have a more complete set of data points, based on full year information for the rate of salary increases, interest credit on retirement savings, employee turnover, and the rate of employee disabilities.

These improvement in estimate more than offset the impact of a decrease in the applicable discount rate previously highlighted, resulting in a CHF490 million net decrease in our defined benefit obligation related to our Swiss plan.

This, along with an increase in the fair value of the underlying plan assets, led to a pretax gain of CHF906 million recognized in OCI.

We note that we've maintained a prudent approach in our review of the IFRS accounting for our Swiss pension plan, and I'd emphasize that none of these calculations impact our pensioners or current employees.

Our fully applied Swiss SRB leverage ratio increased 50 basis points to 4.6%, as our fully applied total regulatory capital increased, largely due to the issuance of CHF3.5 billion of high and low trigger AT1 instruments out of UBS Group AG in February, and as our leverage ratio denominator decreased by CHF21 billion.

Our fully applied BIS Basel III leverage ratio was 3.4%.

Looking at a pro forma measure of the Swiss SRB leverage ratio, using a denominator based on BIS rules, our fully applied ratio would be 4.5%.

We've added additional disclosure on our leverage ratio based on the BIS rules in the appendix of this presentation, the capital section of our quarterly report, as well as on our investor relations website.

The decrease in our Swiss SRB leverage ratio denominator was largely driven by non-core and legacy portfolio, where it decreased by CHF9 billion to CHF84 billion on continued trade unwind, migrations and compressions.

Leverage ratio denominator also decreased by CHF7 billion in wealth management Americas, mainly due to a reassessment of securities-based lending credit lines.

We've also made continued progress in our measures to improve the resolvability of the Bank in response to Too Big to Fail requirements.

We expect to complete the transfer of our retail and corporate and our wealth management business booked in Switzerland from UBS AG to UBS Switzerland AG as early as mid-June.

The transfer arrangements will provide that UBS Switzerland AG and UBS AG will each have joint liability for most obligations of the other entity that exist on the asset transfer date.

The joint liability is explained in further detail on page 10 of the report.

Thank you.

I'll now hand it back over to Sergio for some closing remarks.

Thank you, Tom.

It's clear that all our businesses were at the top of their game this quarter.

In particular, our wealth management businesses, combined, delivered a pretax profit of over CHF1.1 billion, up 23% in the quarter, and 24% year on year, the first time profits have exceeded CHF1 billion since 2008.

Almost three quarters of the CHF3.9 billion in revenues we generated were recurring.

The businesses delivered CHF19 billion in net new money which, along with the investment performance, partially offset currency related headwinds to our CHF2 trillion invested asset base.

The positive long-term trends we see in our wealth management businesses remain strong.

First quarter revenues, pretax profit and invested assets have all increased year over year for three consecutive years.

UBS is the world's largest and most geographically diverse wealth manager.

As we said in the past, you can't realistically build or buy the world's leading high and ultra-high net worth management franchise.

We are also the only large bank with global wealth management at the center of its strategy.

Our exposure to the world's fastest growing wealth pools is evidenced by our strength in APAC, which is the result of over 50 years of commitments to the region, as well as the partnership between wealth management, the investment banks, and global asset management.

Before we open up for your questions I would like to close with a few thoughts and observations.

Looking ahead, the macro environment continues to evolve in an accelerated pace, especially as global monetary policies are likely to diverge.

Negative interest rates in Switzerland and eurozone will continue to be an issue, at least in the short term, as well as high levels of volatility in foreign exchange markets.

The industry also continues to face increasing regulatory requirements.

In Switzerland the review of the Too Big to Fail regulation is underway.

We continue to support a strong and comprehensive regulatory framework while allowing Switzerland's financial industry to remain competitive.

While I have no reason to believe that future changes will be unreasonable, it's quite clear that the debate will include consequences, not only for the banking industry, but also for the overall economy, particularly because further requirements will almost likely lead to the industry to re-price in order to achieve appropriate shareholder returns.

Therefore, the outcome of this process will not change the fundamental investment case for UBS.

We have a unique business model with an attractive investment proposition.

We are the world's leading wealth manager, operating in the world's largest and fastest growing market.

Retail and corporate, global asset management and the investment bank, all add to our wealth management franchise, providing a unique proposition for clients.

We are confident that we will achieve our full year targeted return on tangible equity of around 10% for this year.

And we remain committed to our attractive capital return policy without compromising our capacity to reinvest in our businesses, and while maintaining capital strength as a key element of our success.

In closing, I'm pleased with the strong quarter.

We stayed close to our clients, we stayed disciplined on risk, and we delivered across all businesses and regions.

The results again demonstrate the benefits of a strategy, defined early and executed with a focus on long-term value creation.

I can assure you that we will add the same focus, going forward.

Thank you, and Tom and I will now take your questions.

(Operator Instructions).

Jeremy Sigee, Barclays.

Two questions, please.

Firstly, could you talk a bit more about the wealth management re-pricing initiative that you flag in your outlook statement and the outflows that could result from that?

And also, the gross margin benefits that you could expect, particularly giving us a sense of scale, how big is this initiative in terms of either AuM or potential outflows, and what sort of accounts it's focused on, that would be very helpful.

Second question, you mention in the report inflation in risk-weighted assets from FINMA multipliers being extended and you give some numbers for the potential impact.

I just wondered, do we take your -- I notice in the appendix you keep your CHF200 billion 2017 RWA target, do we need to restate that, or can you absorb the multiplier increases with offsets elsewhere?

All right, thanks for the questions, Jeremy.

On the wealth management re-pricing initiative scope, we said they're about CHF30 billion in assets in scope that are potentially at risk.

I think it's important just to maybe give a couple of examples of the types of things we might do it with in our discussions with clients.

If you look, for example, with the improvement in our capital ratios over the past few years, we're clearly a very attractive place for people to keep overnight deposits.

The family offices that keep overnight deposits with us attract a high LCR outflow assumption, which means we're required to carry more HQLA against it, so it's not a very attractive positioning for us.

But to the extent that that's really an iron chest of cash, where they can maybe change the balance and have 20% overnight and 80% turned out, it's better for them in terms of return and it's also better for us.

So that's an example of the type of conversation that we might have.

We also have to take a look, in the same way that we did in the investment bank, in looking in our strategy work, and the work that we did post the acceleration of the strategy, on properly pricing for RWA and LRD consumption.

We're also taking a look at that and checking the pricing of previous loans that we have outstanding and have we kept up with the loan pricing, just relative to the cost position on an economic basis.

So overall, we think that the focus here should, hopefully -- our first goal would be, hopefully, to have client behavior changes and to retain all the assets.

Sometimes maybe in these conversations where clients may choose a different alternative, that's not our objective.

In terms of inflation of RWA that we've targeted, the whole discussion on standardized, and your question how that impacts our RWA targets, I think it's a little premature to talk about that.

Our view is, as we get towards the end of the year and the end of the Too Big to Fail debate, in particular on the leverage ratio, it certainly appears to us like a lot of the moves and the actions and the studies around risk-weighted assets have more to do with adjusting densities, so risk-weighted assets can catch up to the real binding constraint, which is leverage ratio.

So I think we'll have to give that a closer look in the third or fourth quarter.

That's great.

Thank you very much.

Kinner Lakhani, Citi.

My first question was on the cost side, where obviously you've given us some guidance of increasing delivery.

I guess what I was trying to figure out is what you termed the temporary regulatory demand; ff you could perhaps give us guidance on the nature of that and how you define temporary.

The second question on the retained funding side, if you could maybe give us a bit more color on what happened in Q1 and what that means for your guidance for this year and next year.

I think your guidance was CHF600 million for 2015 and a flat performance in 2016.

Thirdly, on DTA utilization, I think I estimated maybe about CHF800 million being utilized in Q1, if you could confirm that?

And finally on your litigation, where you talked about advanced discussions, is the NPA, the deferred prosecution agreement, part of this discussion with the DoJ?

Thank you.

Kinner, thanks for those questions.

On temporary regulatory demand, again, I think the best thing for us to do is to use examples.

We're only going to create a Group holding company for UBS once.

We're only going to create the Swiss systemically relevant subsidiary of UBS AG once.

So there are some pretty substantial costs associated with that.

Just to give you a rough idea, we're forecasting that, by the end of 2015, if you just look at the legal entity initiative that we have, so the cost of adjusting our legal entity, so over the past few years will have cost us a total of CHF1 billion by the end of the year.

And these are pretty substantial costs that we see eventually fading away and so that's a positive.

And currently, let's not forget, we're fighting the headwind of temporary and permanent costs associated with regulatory demand.

In terms of the retained funding in the quarter, we certainly think that we're getting to the point where we still see a substantial decrease going into 2016.

Obviously, we've been a little bit ahead of some of our funding plans in terms of the amount of AT1 capital, for example, that we issued this quarter to get ahead of what we believe regulatory requirements will be.

But we still see good progress through 2015 but, in particular, those benefits coming through to 2016.

I'd say flat to a low number for 2016 seems to be the right kind of assumption.

DTA utilization, I think looks like about CHF0.5 billion or so in the quarter.

In terms of the litigation note, where you've correctly read that we stated that we're in advanced discussions, I would say that those discussions are broad on a number of fronts.

But we also note in the litigation note, it's possible that we could not reach a conclusion of those discussions, but we're hopeful and working hard towards that end.

Great.

Thank you.

Jon Peace, Nomura.

My two questions are, firstly, as you think about capital return, how far above your 13% core Tier 1 target do you plan to run to allow for uncertainties like litigation and regulatory developments, whether that's RWA inflation or the Brunetti Commission?

And then just a second longer-term strategic thought, to what extent might your appetite for M&A, particularly in private banking, increase going forward, especially if your peer across the road were to step up their acquisition appetite?

Thank you.

Thank you.

I think that our capital return strategy is clear.

I think that, when we look at how we manage the excess above this 50% payout, we will always take into consideration forward-looking expectations in terms of developments on the regulatory front, which we are confident we can accommodate, given our strong capital position and our cash generation capabilities.

We will, clearly also, take into consideration the possibility that the incoming years may have a headwind in terms of litigation cost above what we provisioned.

So we have a prudent and stable dividend policy.

Our baseline dividend is CHF0.50, as you know.

We are committed to, clearly, return any excess capital to shareholders that is not necessary to deploy and invest in our business.

In respect of M&A, as we said in the past, we have been demonstrating in the last few years our capacity and capability to grow organically.

It would be inappropriate for us to rule out completely M&A.

But I see the current prices of assets as quite a big deterrent for us to be active in M&A.

I think that I would say that we are focused on executing our own strategy; our own strategy is successful.

We are not going to change our strategy based on the reaction of a few competitors that may or may not want to enter or deepen their presence in wealth management.

If we stay disciplined, we think that we will always be able to perform strongly in considering the value of our franchise.

Okay.

Thank you.

Kian Abouhossein, JPMorgan.

The first question is just going back to litigation, DoJ, if I read the text exactly in your filing, I'm not sure if you're referring that -- you state, we believe that our provisions in relation to the matter are adequate to meet anticipated financial terms of the resolution.

Is that just related to DoJ, or also to other agencies?

And in that respect, is your tax issue more a legal entity issue or more a New York branch issue?

That's the first question.

Second question is, if you could just repeat your view around risk-weighted assets because I wasn't sure to the answer that you gave to Jeremy.

You talk about roughly CHF30 billion of risk-weighted asset increases, but then you don't want to adjust your target on risk-weighted assets.

In that context, how should we think about market risk, securitization risk-weighted assets; are they included in these numbers or not?

And the third question is related to non-core.

What is actually the maintenance cost of running non-core, and where do I see the CHF800 million cost savings that you're accumulating in the corporate center?

Because your staff numbers are not actually coming down, so I'm just wondering on slide 15, it's a nice slide, but it's difficult to see, and slide 14.

Okay, let me take those in order, Kian.

So back to the litigation note where you went through the reading of that, the statement about the provisions being adequate as the litigation note, is the litigation note for UBS Group AG, applies to UBS Group AG, and is a statement regarding the matter related to foreign exchange.

In particular, that's in the section called foreign exchange-related regulatory matters, so that's where that specific comment should be attributed.

So I should imply to all agencies?

You should imply that the statement applies to all foreign exchange-related regulatory matters that the provision's adequate.

Next question had to do with the RWA statement, which I think it's important to note in that section, we talked about the multipliers moving over the course of about a four-year period, and we talked about an increase of CHF5 billion to CHF6 billion a year over that time period.

Certainly, there are adjustments in business that could occur during that time period, as well as other items.

It does not include the market risk of securitization adjustments.

And I think it's important to just go back to what I answered to Jeremy, which is to say we believe that a lot of this work on risk-weighted asset adjustments and reviews are slowly going to catch up to the capital requirements that will be necessary from a leverage ratio perspective.

So until the leverage ratio debate is compete, it wouldn't be appropriate to try to assess an RWA target and, in some ways, it's actually a secondary matter because the leverage ratio capital requirement will be the binding one.

So it implies that you could let your Tier 1 target of 13% slip it's fair to say?

No, I wouldn't draw that conclusion.

What I would say is what I said before.

It's premature to draw a conclusion on it.

I think the leverage ratio capital's going to be the binding constraint.

And don't forget, we also have flexibility on leverage ratio capital in terms of AT1 issuance that's available to us.

Finally, in the slides that you were talking about on the cost reduction side, I think there's a very detailed slide that's in the appendix that gives you greater explanation on the annualized cost reductions, which is slide 26.

Now your question was, I don't see headcount going down as quickly.

First, as you know, in certain jurisdictions, there's a delay between notification and when someone comes off the rolls; in some of our jurisdictions, it's as long as nine months.

So there is that delay that's present.

Second, as you know, which I commented on in my remarks, we've got a very large outsourcing, nearshoring and offshoring initiative.

As we increase our headcount in our business solution centers in Nashville, Tennessee, in Krakow, in Shanghai and in Pune, we're reducing our costs, our overall cost of operating, but our headcount numbers may, in fact, be flat.

And we're not targeting headcount, we target costs; costs are the output that we're looking for.

I think the other thing that you see when you look at the cost reductions, you really do see the cost reductions coming through, in particular in the non-core and legacy portfolio, and we can follow up after the call if you want to see more detail.

The non-core and legacy portfolio, because we've been able to run it down more quickly, you're seeing the allocation for the cost of supporting that, the corporate center costs of running that, are actually being reduced pretty substantially.

So we feel good.

We think at the CHF800 million we show through 1Q, we think we're on track to meet the CHF1.4 billion.

Okay, that's great.

I'll follow up afterwards.

I didn't see slide 26.

Thank you.

Huw Van Steenis, Morgan Stanley.

Could I just ask one more question about the non-core unit?

I see that the pace of run-off has slowed somewhat and, at 16.5% of your either leverage or risk capital, it's probably one of the highest of any of your peers.

So as you sit after a very strong set of Q1 numbers, what are the pros and cons of accelerating the wind down of the non-core unit further?

And to what extent is the weight of the non-core unit a binding constraint on dividend payouts?

And, more broadly, how does the non-core unit's size and shape factor into the way you think about dividend for this year and beyond?

Thanks.

Yes, thank you.

I think that if you look at our non-core and legacy section, I think that we are running ahead of schedule.

I think that our dividend policy and capital return policy in general is stated with an assumption of a passive management of the structure.

As you can see, the vast majority of the risk-weighted assets and the capital is now attracting through up-risk rather than being a credit and market risk.

The constraint is the same that we used in the last three years.

We will not dispose assets or accelerate any exit of those positions if this is non-economically justifiable for our shareholders.

I think that we have no urgency to do that and we will take advantage, if there is an opportunity to do so if it makes economic sense, because as you can easily understand, if we basically do something else, it's going to destroy capital and it's going to destroy the ability to return on capital.

So there is no constraint.

We have an ability with the rest of our businesses to generate enough capital capacity to implement a generous capital return policy and, therefore, we don't see that as our main constraint.

You see the size of non-core and legacies becoming quite irrelevant from a risk-weighted asset and balance sheet [standpoint] of view.

As Tom mentioned, our focus right now is to take out the cost and review the cost.

If I could just add something, Huw, to Sergio's comments.

When you look at the stress capacity in the non-core and legacy portfolio, that stress loss associated with that, that's come down significantly over the past few years.

In a way, if you think about your question, in what ways does this constrain us?

Probably not as much as you think.

The second piece is, obviously we've run a very thorough analysis on what's the cost of equity to support the positions, and is it really worth it to shareholders to execute sales at unattractive prices.

That's what we've done for the past couple of years and we think it's paid off well.

Great.

Thank you very much indeed.

Fiona Swaffield, RBS.

Could I ask a couple of questions?

Firstly, just on the RWA inflation from FINMA, how do you think this ties in with the expected proposals, or the finalization proposals from Basel?

Do you think this already bakes in quite a lot of that, or do you think that could come on top in terms of, say, in the aspects of credit risk?

The second issue is on wealth management.

You mentioned that currency was an impact on recurring fees; could you say how much that was?

I think you said recurring fees were still up.

I didn't know if that was sequentially; I'm assuming.

Can we see the impact of the mandate sales; is it still a net positive on recurring fees?

Thank you.

Fiona, in terms of your question on how much does this anticipate in terms of Basel, I would say, certainly in terms of spirit and philosophy, what we see coming out of FINMA seems very aligned with some of the Basel areas of focus.

I also think, too, the one thing that we should remember in some of these debates is that regulators are very public about saying, we don't expect you to change from using your advance modeling in terms of looking at the way you manage your risks.

So first and foremost, it's not an abandonment of the advanced approach.

I think the second piece though, as I mentioned, I do think it is the risk-weight debate, whether it's on floors or multipliers or reviews, certainly are things attempting to catch up to the leverage ratio discussion.

Now, we're very supportive and have been participants in a lot of the BCBS peer reviews.

We think that those are very effective.

We're supportive of additional qualitative of disclosure on differences, and I think you saw some of that in our Annual Report.

We did have some exercises that show some of the weaknesses of using standardized models.

We think this is all part of a debate that will develop, certainly in Switzerland, over the remainder of the year, and we'll have better clarity at that point in time.

On your question on wealth management currency impact, currency, although it may seem like the quarter was so good that we just didn't have any headwinds from currency, we did have headwinds from currency in our wealth management businesses, in the IB, in translation on wealth management Americas.

You saw it mostly in wealth management, because we've got that greatest dislocation between the revenues associated with dollars and euros versus the expense base.

Notwithstanding that, we were able to make good progress on the lines.

In particular, I think the initiatives that we've had in place on mandate penetration clearly delivered a good performance for us in the quarter.

I do think it's important to remember, we will have some headwinds from currency as we continue throughout the remainder of the year.

Thank you.

Andrew Stimpson, Bank of America.

Costs clearly very strong in the quarter this time around.

Is there any seasonality in those that [we] might see some catch up in future periods, or is that just a really positive performance that we can bank for the whole year now?

Then secondly, can you talk more about net interest margins?

You mentioned in retail and corporate, you seemed slightly more optimistic than you did a few months back in terms of where you think margins might be towards the end of the year.

I just wanted to know what had really changed in the last few months for you to change that view.

Then lastly, on wealth management again, just on risk taking, is there any more change from clients into riskier asset types?

I know you've sold more mandates, which is clearly a positive for margins.

But just on the non-mandate assets, whether you're seeing clients react to those negative, or at least low rate environment outside of Switzerland, in pushing clients further up the risk curve?

Thanks.

Andy, I think on the cost side, we saw, as you noted, good progress in the quarter in terms of setting ourselves up to get to the CHF1.4 billion.

The seasonality we've tried to exclude from the calculation.

For example, if you look at things where we have higher expenses later on in the year, what we've done is we've -- although we don't book it that way, in the analysis we've made it a linear assumption, to make sure that we don't over-claim our progress on savings this early in the year.

I wouldn't expect seasonal benefits to kick in for us on the cost side.

It's only going to come from getting the work done that we've laid out.

Now obviously, if you're targeting costs on an exit rate basis, which we are, there are more activities as you make your way through the year.

And it's a matter of just keeping to our project plans and executing against those.

The biggest thing we have there is focused on our outsourcing, nearshoring and offshoring initiatives, making sure we're able to move processes to the locations where we think it's most advantageous to us and to complete those plans.

In terms of the net interest margin in retail and corporate, you're correct on the guidance we gave right in the immediate reaction to the SNB move, we said that we would make moves on the pricing side.

The question was, would they stick.

We saw certain of those pricing measures stick in the course of the quarter.

The one thing that I'd point out, and the one thing I mentioned in my remarks, was if we see current pricing stick, despite the fact that we're starting to see, for example on the mortgage market, new entrants coming into the marketplace, so we've got to see.

If margins hold, my comment was that we could see, rather than the lower end of the 140 to 180 [basis points] range, we could see something at the end of the year that's just slightly lower than the middle of that range.

But it does require us to see pricing sticking throughout the industry.

Your last question about risk, it's interesting, you tailored your question to focus away from our mandates.

I think one of the most interesting things is actually in mandates.

Although it's still a small percentage of our mandate clients, we have seen, in mandate clients specifically if you do a comparison to the prior year, a step up of one notch in risk in terms of their preferences in picking mandates.

So that could be an earlier indicator.

I don't think where we've seen other than transactional activity, which is related to pick up in volatility, I don't think you really see a step up in risk profile, either in our wealth management clients outside the US or in the US.

Maybe, Tom, let me add to NII, particularly for retail and Switzerland.

I think that this new entrant in the mortgage market that you mention it's an important element when we look at NII development.

So I see more the chance of NII contraction as a function of mis-pricing coming through the industry, and our lack of desire to go into a pricing war.

So I think that we are willing to compromise, potentially, market share if pricing becomes unreasonable.

So that's probably also one element to look in addition to replicating portfolio and rates dynamics.

It's really a market share dynamic which, as you saw in the past, we have been increasing the margins on mortgages to reflect new regulation, and we will not let this lack of discipline in pricing compromise the work we did in the last couple of years.

Brilliant.

Thank you.

Stefan Stalmann, Autonomous Research.

Congratulations to the results.

I have three questions, please.

The first one is, could you update us on the stake that you currently hold in the old UBS AG?

I think last time you said something, it was above 97% now.

The second question is, you had quite a decline in your central bank deposits during the quarter, and a good part of that seems to have gone into AFS securities.

Is that just a normalization from the yearend level, so is there any particular change in treasury strategy behind this?

And the final question on leverage, if you look at this as your binding constraint now, do you see scope to bring the CHF900 billion leverage exposure target down further in any material way?

Thank you.

So, Stefan, I'll take the in reverse order.

First on the leverage ratio, I think that what we've shown in this quarter, and I thank you for your comments on the results, it shows the capital generating capability of the business.

I think looking at the target, I think what we'd rather do is make sure that we're not restricting growth and making sure that we're providing, prudently, enough capital to make sure our businesses can grow.

And so I would say I don't believe you'd see us reducing that target in the future.

Your question about central bank deposits to AFS, it's not a change in treasury strategy; it's more a seasonal effect.

We tend to see those changes as normal, not a major strategic shift on our part.

And then finally, going back to the stake, I think at the end of 1Q we were at 97.47% at the end of the first quarter.

Great.

Thank you very much.

Andrew Lim, Societe Generale.

Well done on the cost management this quarter; I think that's the first time in a long, long time.

But I'm still finding difficulty in trying to reconcile cost reductions in your corporate center, and what you've shown in the various slides versus what consensus is going for.

It does seem that consensus is a well higher, a lot higher on costs than what you're guiding to.

I guess I struggle, because the cost reductions you're guiding to are before allocation, so in some sense, it's already taken into account in the cost/income ratio targets that you've got for the operating divisions.

So I was wondering whether you could give some sense of what the costs in the different corporate center divisions would be after allocations, going forward, what we should expect there.

And then also sticking with the corporate center, on the non-core and legacy portfolio you've got a big reduction in the operating income losses to minus CHF80 million from minus CHF361 million.

You do explain why versus the prior quarter, but it is quite a lot lower than the prior quarters before that as well.

And I was wondering if you could say minus CHF80 million is the new quarterly run rate that we should expect, going forward, given the absence of the one-off that we saw in the fourth quarter.

And then just lastly, in wealth management, the NII component seemed to come down which is the opposite of what happened at a notable Swiss competitor of yours, and there seems to be different dynamics going on.

I was just wondering, from your point of view, whether that NII component in wealth management should stay at that lower level, or indeed decrease further, given the current Swiss franc and low interest rate environment.

Many thanks.

Andrew, thanks for your questions.

If I could go through these, I think I'd make one general comment which I think is important.

In the third quarter, post the fourth -- third quarter results, fourth quarter results, and I think, hopefully not now, first quarter results, I think some of the mistakes that get made are when people dig in and start to effectively annualize some of the results.

So I hope that that's not what's going to happen, because it will lead people astray in 1Q, just like it has in the third quarter and the fourth quarter.

Now, specifically, in looking at your question on cost management and how you reconcile that, we can give you a detailed reconciliation after the call.

I can [show you a] reconcile.

Your question, though, about pre-allocation, post-allocation, we had, if you look in some the footnotes from the prior quarter slides we've got a detailed breakdown of which divisions where we expect to see the cost savings, and also the IR data of last year, gives you the breakdown by division of where we expect that CHF1.4 billion of cost savings to actually come through in the different lines.

So I do think that that's probably the best way to try to flip that back.

I think the one thing that's different from what we expected, and you do see that even on slide 15, what we're seeing is much quicker cost reduction coming out of the non-core and legacy than we anticipated.

So what you're seeing is it's not necessarily coming in the divisions directly, it's coming out of the Group as a whole.

You also see that on slide 26 has the greater detail.

But our annualized savings coming out of non-core and legacy out of the CHF800 million is CHF500 million and roughly CHF300 million out of the corporate center core.

And let's not forget the non-core and legacy savings comes from the corporate center core allocations that go to NCL, so we're getting the total costs out.

It's just occurring in a different order than we expected those costs to come out, but we're happy to get them out either way.

Your question about the operating income and losses in the corporate center; I do think again what did we have this quarter versus last quarter?

Last quarter, we had a huge amount of activity.

We also had termination of CDS contracts at non-core that cost, I think, around CHF130 million in 4Q.

So we did have certain items that, clearly, were unique in the fourth quarter and unique in the first quarter.

I think it's fair to say, though, that as we've reduced the non-core and legacy, and also in the way I answered Huw's question, if we have a larger cost in any one particular quarter in non-core and legacy, it's because we believe that cost of acceleration is worth it.

Obviously, as the portfolio gets smaller, the number of opportunities for that is actually going to be smaller as a result.

Finally, on the NII and different moves with different firms, the only thing I would say is different firms have different strategies, approaches.

And I think that one of the things that's benefited us has been we've had a focus on pricing as a strategy in our wealth management businesses in retail and corporate as a two-year focus.

So we're not starting something up new.

We're in full implementation mode and I think we're pretty agile in terms of the way that we can respond.

That's great.

Thank you very much, Tom.

Al Alevizakos, KBW.

I would like to focus a bit on the wealth management business.

Obviously, when I'm checking the numbers I can see that the client advisors for the ultra-high net worth individual segment went up significantly in the quarter.

If I calculate it correctly, annualized they've gone up by 18%, which I suppose does it mean that you're actually targeting new market share, particularly in Asia, I assume.

And then the question is, are you targeting people from other banks?

Or are you basically trying to create a new, let's say, group of graduates that they're going to grow into the role?

That's my first question.

Second question, can you give some disclosure about the ultra-high net worth individuals in the US?

And thirdly, just a question for my numbers.

What was the impact for the CHF unpegging one-off gain in the investment bank?

Thanks very much.

Let me go through these in order.

So one, there is an effect of approximately 70 advisors in aggregate in wealth management, where we've reclassified the non-CA staff to CA, because they're moving from sales support to junior CA type of roles.

So I think that that's not indicative of the new hiring that occurred in the quarter, but more indicative of this reclassification role.

Notwithstanding that though, I do think it's correct for you to point out that we clearly are focused on adding advisors in the growth regions, as well as in the growth segments, like ultra-high net worth.

I think there are two things; one, we do have in Asia is one of the places where we've got very clear training programs to bring in graduates, and a way to train them and bring them through a cycle, so they can start on a team and move their way up to become certified as full client advisors.

At the same time, I don't think we target any particular firms.

I think the better way to phrase it is, I think our Firm offers a very attractive platform to client advisors who want to do a great job for the clients.

And I don't think they can find a better choice than us.

On the ultra-high net worth clients in the US, I don't have it off the top of my head in terms of the stats.

As you know, we can follow up after the call --

It's the one we publish in Q4.

So we'll get you that after the call.

I do think, just to point out, there's a little difference.

The US standard for reporting on ultra-high net worth clients, starts at $10 million.

So that's the reason we try not to mix the stats because they would be a little confusing.

But we'll get you after the call on that.

In terms of one-off gains in the investment bank and the quantification of that, we haven't disclosed that.

One thing that I would say, what benefited us in the investment bank, in the quarter, in the foreign exchange business, was one, our model is a client flow based model.

And so when volumes pick up in particular where we're a key dealer, something like Swiss franc crosses, we benefit.

Second, our investments in our e-trading platforms that we've made over years pays off in an environment like this because clients have told me, my job at non-financial firms, more manufacturing firms, have said we like the way that your e-systems work in a volatile market environment.

And so that's a positive.

And finally, third, to the extent that we're managing to a stress ratio, overall in our business, you would expect us to have certain tail risk protection against significant market moves.

And it's something that occurred -- I forget some people I think quoted as saying was a 300 standard deviation move, clearly that's something that could pay off for us in an environment like the SNB.

I would add that clearly, as you saw in the first quarter and going forward, hedging euro exposure for Swiss corporates, and businesses in general, will be a business that will come back.

For the last three years, basically, people were not hedging their exposure, and this is definitely going to be something that we can see as a more recurring transaction line, going forward.

Okay.

Thank you very much.

Okay.

I think that we can now open to the press for Q&A.

I will close so you take over.

Thank you for attending this call and, Caroline.

Thank you very much for joining this morning.

We are going to close this call down, and we will reopen immediately for the media call.

Thank you very much.

Ladies and gentlemen, the Q&A session for analysts and investors is over.

Analysts and investors may now disconnect their lines.