UBS posted $29 billion in profit in the second quarter, the first results since the Credit Suisse takeover

A general view of the UBS building in Manhattan on June 5, 2023 in New York City.

Eduardo Munoz Alvarez | press view | Corbis News | Getty Images

UBS on Thursday reported second-quarter profit of $28.88 billion, its first quarterly profit since Switzerland’s largest bank completed its takeover of stricken rival Credit Suisse.

Analysts had expected 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 reflects the $28.93 billion in negative goodwill generated by the Credit Suisse acquisition. Underlying earnings before tax, which excludes negative goodwill, integration-related expenses and acquisition costs, was $1.1 billion.

Negative goodwill represents the fair value of the assets acquired in a merger in excess of the purchase price. UBS paid a reduced sum of 3 billion Swiss francs ($3.4 billion) to take over Credit Suisse in March.

“Two and a half months after closing the Credit Suisse acquisition, we are wasting no time delivering value to all our stakeholders from one of the largest and most complex bank mergers in history,” UBS CEO Sergio Ermotti said in a statement.

“We are regaining customer confidence, reducing costs and taking actions to create economies of scale that will allow us to better focus our resources and direct investments for future growth.”

Here are some other highlights:

• The capital ratio CET 1, which is a measure of banks’ liquidity, was 14.4% compared to 14.2% in the second quarter of 2022.
• The return on tangible equity (excluding negative goodwill, integration related expenses and acquisition costs) was 4.3%.
• The leverage ratio for CET1 was 4.8% compared to 4.4% a year ago.

Credit Suisse will be fully absorbed

The group also announced Thursday that Credit Suisse’s powerful domestic banking unit will be fully integrated into UBS, with the legal entities expected to close in 2024.

The fate of Credit Suisse’s flagship Swiss bank, a major profit center for the group and the only division still generating positive earnings in 2022, was a pivotal point in the takeover, with some analysts speculating that UBS could spin it off and float it in the IPO.

Ermotti said the bank’s analysis concluded that this was “the best outcome for UBS, our stakeholders and the Swiss economy”. Merger may be more controversial in Switzerland due to the potential for massive job losses in the process.

The Credit Suisse acquisition was part of an emergency rescue deal brokered by Swiss authorities over a weekend in March. Earlier this month, UBS announced that it had terminated the CHF9 billion ($10.24 billion) loss protection and CHF100 billion general liquidity support agreement that the Swiss government put in place when it agreed to take over Credit Suisse in March. .

“Customers will continue to receive the outstanding level of service they expect, while benefiting from enhanced offerings, expert capabilities and global reach,” Ermotti said of the integration of Credit Suisse’s Swiss banking division.

“Our strong capital base will enable us to keep our combined lending exposures unchanged, while maintaining our risk discipline.”

The bank also announced that it is targeting total cost savings of at least $10 billion by 2026, when it hopes to complete the integration of all of Credit Suisse’s businesses.

UBS delayed announcing second-quarter results – initially scheduled for July 25th – until after the completion of the Credit Suisse acquisition on June 12th.

In the previous quarter, UBS suffered a surprising 52% annual decline in net profit due to a longstanding court case involving mortgage-backed securities in the US.

Shares of UBS closed Wednesday up nearly 30% year-to-date, according to Eikon.

In a separate file on ThursdayIts subsidiary Credit Suisse reported a net loss of CHF 9.3 billion in the second quarter, seeing net asset inflows of CHF 39.2 billion, with assets under management down 3% amid an exodus of clients and staff.

Thursday’s report was the last by Credit Suisse as an independent entity, and showed that despite the bailout, the loss of customer confidence that precipitated the bank’s imminent collapse in March has yet to be reversed.

However, UBS noted that this rate of attrition was slowing, and the bank would be keen to retain as many Credit Suisse clients and clients as possible, in order to make the mega merger a long-term success.