UBS AG (UBS)
Q3 2010 Earnings Call Transcript
October 26, 2010 3:00 a.m. ET

Executives

Caroline Stewart – Head, Investor Relations
John Cryan – Chief Financial Officer

Analysts

Jon Peace – Nomura Asset Management
Kinner Lakhani – Citigroup
Fiona Swaffield – Execution Noble
Kian Abouhossein – J.P. Morgan
Derek de Vries – Bank of America/Merrill Lynch
Jacques-Henri Gaulard – Autonomous Research
Matthew Clark – Keefe, Bruyette & Woods
Huw Van Steenis – Morgan Stanley
Christopher Wheeler – Mediobanca SpA
Jernej Omahen – Goldman Sachs
Robert Murphy – HSBC

Presentation

Caroline Stewart

Good morning, everyone and welcome to our third quarter results presentation. My name is Caroline Stewart and I''m the Head of Investor Relations at UBS. This morning our Chief Financial Officer, John Cryan, will take you through the results and then we''ll be very happy to take your questions.

Before we get started, I''d like to highlight this slide which contains our cautionary statement with regard to forward-looking statements. And I''d ask you to take some time to read it. With that, I''d like to hand over to John.

John Cryan

Good morning, everyone and welcome to the webcast. It''s my pleasure to take you through the details of our results for the third quarter of 2010.

We made a bottom line net profit attributable to our shareholders of 1.7 billion francs or diluted earnings per share 0.43 Rappen. About half of this amount comprises a net tax credit, which I''ll cover in more detail later.

All of our businesses report lower revenues quarter on quarter as a result of lower levels of client engagement. The results of most of our divisions were also heavily impacted by the 9% fall in the value of the U.S. dollar against our reporting currency. Our overall invested asset base held up despite the effects of heavy foreign currency depreciation. This was in large measure thanks to strong market performance.

We further strengthened our capital base and reported Tier 1 ratio of 16.7%, notwithstanding having called a $1.5 billion hybrid capital instrument. Our core Tier 1 capital was 29.6 billion francs at the end of September, representing 14.2% of risk-weighted assets, as calculated on a Basel II basis.

Our annualized return on equity year to date has been 17.6%, well within the range of the medium-term target we set last year. This waterfall chart shows the principal quarter-on-quarter changes in our net profit attributable to shareholders.

The narrowing of our credit spreads over the quarter reversed some of the own-credit gains in Q2, with an aggregate delta of almost 1 billion francs. Our operating income, excluding own credit and credit-loss expenses, nevertheless fell quarter-on-quarter by over 1.6 billion francs. This was principally as a consequence of the unusually low level of client activity. To mitigate the impact of lower revenues, we cut our expense base.

We''ve recognized a net income tax benefit for the quarter of 825 million francs. The principal component of the tax line is a credit to income of 882 million francs and the remeasurement of the deferred tax assets recognized on our balance sheet in respect of tax losses incurred in previous years in the United States of America.

This was partly offset by amortization of deferred tax assets held against prior period losses recognized in Switzerland, net of the recognition of the deferred tax revaluation benefit that I mentioned last quarter. The net amount of the two items relating to Swiss tax was a charge of 272 million francs.

We were also able to recognize an aggregate credit of 246 million francs as a consequence of agreeing previously opened prior-year tax positions in a number of jurisdictions. And, finally, we incurred a smaller net charge of 31 million francs, largely representing current tax payable, again in a variety of locations.

The recognition of deferred tax assets through the P&L is governed by standards that requires annual pro rata (inaudible) recognition. So, for example, the $900 million credit we took in Q3 in recognition of U.S. tax losses represents three-quarters of the overall amount of $1.2 billion. The remaining $300 million will be recognized in Q4 together with the final installment of the other deferred tax remeasurement for the year.