UBS unveils more ambitious targets, raises 'no-pause' buyback to $5B

UBS Group AG will pursue improved profitability and efficiency targets and increased share repurchases in 2022 after announcing its best annual profit in 15 years.

At $7.46 billion, the Swiss bank's 2021 net profit attributable to shareholders was the highest since 2006, according to executives. All business lines posted year-over-year growth in pretax operating profit for the full year, except for the investment bank.

CEO Ralph Hamers told analysts during an earnings presentation that UBS was in "better shape than ever." The bank's shares were up more than 7% at around midday Feb. 1 in Zurich.

Increased provisions

UBS booked an additional $740 million of fourth-quarter 2021 provisions for its French tax case, of which $657 million was taken in its global wealth management division. The bank had already earmarked €450 million for the case in 2019.

The add-on provisions hit the pretax operating profit of the flagship division, which fell to $563 million in the quarter. Absent the provisions, the figure would have been €1.22 billion, an increase of more than 40% from $864 million in the year-ago period.

Fresh targets

UBS said it is now targeting a return on common equity Tier 1 capital of between 15% and 18% and a cost-to-income ratio of between 70% and 73%. Previously, it targeted a return on CET1 capital of 12% to 15% and a cost-to-income ratio of 75% to 78%.

The bank managed to beat its previous goals for full year 2021, though the figures weakened in the final quarter, mainly due to the French tax case provisions.

When asked whether the targets are conservative given expected cost savings, Hamers said UBS is leaving some room as buffer against potential market volatility, adding that the "very constructive" environment in 2021 is unlikely to repeat this year. "[We] have to accommodate the fact that we're going to see a different market environment."

The targets are seen as achievable considering the continued momentum and growth in the global wealth management area, Maria Rivas, senior vice president for global financial institutions at DBRS Morningstar, said in an email.

Buyback boost

UBS is planning up to $5 billion of share buybacks for 2022, following on from the $2.6 billion of stock repurchased in 2021. The new buybacks will commence Feb. 2 and will be carried out without pause, unlike in 2021 when the bank advised on repurchases quarterly, CFO Kirt Gardner said.

The new buyback threshold is better than consensus expectations, said analysts at JPMorgan, who have an overweight rating on UBS. A mid-single-digit increase in EPS consensus may be expected primarily due to the buyback program, they said in a Feb. 1 note.

UBS is very capital-generative, having generated $7.7 billion of capital in 2021, Gardner said. In utilizing excess capital, the first priority is business growth, then meeting regulatory requirements, then accruing cash dividends. "We indicated we'll be progressive in our cash dividend," Gardner said.

UBS plans to distribute an ordinary dividend of 50 cents per share for 2021, equivalent to an accrual of $1.7 billion, according to Gardner. The dividend will be paid April 14 to shareholders on record as of April 13.