UBS shares rise 3% as market focuses on strong underlying profit

Finance

A logo of Swiss bank UBS is seen in Zurich, Switzerland March 29, 2023. 
Denis Balibouse | Reuters

UBS on Tuesday reported a bigger-than-expected third-quarter net loss of $785 million as it works to integrate fallen rival Credit Suisse.

Analysts polled by Reuters had anticipated the Swiss banking giant would record quarterly net loss of $444 million in a company-compiled poll.

The loss was driven by $2 billion in expenses related to the Credit Suisse integration, with the bank recording an underlying operating profit before tax of $844 million.

Here are some other highlights:

  • Total group revenues were $11.7 billion, up 23% from $9.54 billion in the second quarter.
  • CET1 capital ratio, a measure of bank liquidity, was 14.4%, unchanged from the previous quarter.
  • Credit Suisse Wealth Management generated positive net new money inflows for the first time since the first quarter of 2022, contributing to inflows of $22 billion for UBS Global Wealth Management.

“We are executing on the integration of Credit Suisse at pace and have delivered underlying profitability for the Group in the first full quarter since the acquisition. Our clients have continued to place their trust and confidence in us, contributing to strong inflows across wealth management and our Swiss franchise,” CEO Sergio Ermotti said in a statement.

“We are optimistic about our future as we build an even stronger and safer version of the UBS that was called upon to stabilize the financial system in March and one that all of our key stakeholders can be proud of.”

Analysts at Citi highlighted on Tuesday that the $844 million underlying profit before tax figure was “notably ahead of prior company guidance (of break-even), treble consensus expectations and 6% ahead of our above-consensus forecast.”

“As we expected the beat is driven by better opex [operating expense], 7% below consensus, with revenues also 1% ahead. This is then slightly offset by heavier provisions,” they noted, adding that the acceleration of Wealth Management net new money inflows in September was also “encouraging.”

Citi concluded that Tuesday’s report was “overall a good set of results” and reiterated its Buy/High Risk rating.

UBS completed its takeover of its stricken domestic rival in June and announced in August that it had ended a 9 billion Swiss franc loss protection agreement and a 100 billion Swiss franc public liquidity backstop that were put in place when the emergency rescue was agreed in March.

The bank’s shares soared to their highest point since late 2008 in August after its second quarter earnings results reported a $28.88 billion net profit as a result of negative goodwill on the Credit Suisse acquisition.

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 ($3.33 billion) to acquire Credit Suisse in March, in a deal mediated by Swiss authorities to prevent the collapse of the storied but scandal-plagued lender.

The stock price has since moderated slightly, but remains up more than 27% on the year.

UBS is also in the process of fully integrating Credit Suisse’s Swiss banking unit — a key profit center — and is expected to cut a hefty proportion of the legacy bank’s workforce.

UBS reported net new deposits of $33 billion across its Global Wealth Management and Personal and Corporate Banking (P&C) divisions, with $22 billion coming from Credit Suisse clients and positive deposit inflows for P&C in September, the month after UBS announced the decision to integrate the domestic bank.

The bank also announced earlier this year 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.