General view of the UBS building in Manhattan on June 5, 2023 in New York City.
Eduardo Munoz Alvarez | View Press | Corbis News | Getty Images
UBS on Thursday posted a second-quarter profit of $28.88 billion in its first quarterly earnings since Switzerland’s largest bank completed its takeover of stricken rival Credit Suisse.
Analysts had projected a net profit of $12.8 billion for the three months to the end of June, according to a Reuters poll.
UBS said the result primarily reflected $28.93 billion in negative goodwill on the Credit Suisse acquisition. Underlying profit before tax, which excludes negative goodwill, integration-related expenses and acquisition costs, came in at $1.1 billion.
Negative goodwill represents the fair value of assets acquired in a merger over and above the purchase price. UBS paid a discounted 3 billion Swiss francs ($3.4 billion) to acquire Credit Suisse in March.
“Two and a half months since closing the Credit Suisse acquisition, we are wasting no time in delivering value for all our stakeholders from one of the biggest and most complex bank mergers in history,” UBS CEO Sergio Ermotti said in a statement.
“We are winning back the trust of clients, reducing costs and taking the necessary actions to create economies of scale that will allow us to better focus our resources and target investments for future growth.”
Here are some other highlights:
- CET 1 capital ratio, a measure of bank liquidity, reached 14.4% versus 14.2% in the second quarter of 2022.
- Return on tangible equity (excluding negative goodwill, integration-related expenses, and acquisition costs) was 4.3%.
- CET1 leverage ratio was 4.8% versus 4.4% a year ago.
Credit Suisse’s Swiss bank to be fully absorbed
Credit Suisse’s stalwart domestic banking unit will be fully integrated into UBS, the group also announced on Thursday, with a merging of legal entities expected to close in 2024.
The fate of Credit Suisse’s flagship Swiss bank, a key profit center for the group and the only division still generating positive earnings in 2022, was a focal point of the acquisition, with some analysts speculating that UBS could spin it off and float it in an IPO.
Ermotti said the bank’s analysis had determined that this is “the best outcome for UBS, our stakeholders and the Swiss economy.” The integration may prove more controversial in Switzerland because of the possibility of heavy job losses in the process.
The Credit Suisse acquisition was part of an emergency rescue deal mediated by Swiss authorities over the course of a weekend in March. Earlier this month, UBS announced that it had ended a 9 billion Swiss franc ($10.24 billion) loss protection agreement and a 100 billion Swiss franc public liquidity backstop that were put in place by the Swiss government when it agreed to take over Credit Suisse in March.
“Clients will continue to receive the premium level of service they expect, benefiting from enhanced offerings, expert capabilities and global reach,” Ermotti said of the integration of Credit Suisse’s Swiss banking division.
“Our stronger capital base will enable us to keep the combined lending exposures unchanged, while maintaining our risk discipline.”
The bank also announced that it is targeting gross cost savings of at least $10 billion by 2026, when it hopes to have completed the integration all of Credit Suisse Group’s businesses.
UBS delayed reporting its second-quarter results — initially scheduled for July 25 — until after completing the Credit Suisse takeover on June 12.
In the previous quarter, UBS suffered a surprise 52% annual drop in net profit due to a legacy litigation issue relating to U.S. mortgage-backed securities.
UBS shares closed Wednesday’s trade up nearly 30% since the turn of the year, according to Eikon.
In a separate Thursday filing, the Credit Suisse subsidiary posted a second-quarter net loss of 9.3 billion Swiss francs, as it saw net asset outflows of 39.2 billion Swiss francs, with assets under management falling 3% amid a mass exodus of clients and staff.
The Thursday report was Credit Suisse’s last as an independent entity, and showed that, despite the rescue, the loss of client confidence that precipitated the bank’s near-collapse in March has yet to be reversed.
UBS nevertheless noted that this attrition rate was slowing, and the bank will be keen to retain as many Credit Suisse clients and customers as possible, in order to make the colossal merger work in the long run.