UBS likely to be in the red
Published: Monday, Nov 6th 2023, 14:08
Updated At: Tuesday, Nov 7th 2023, 00:54
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UBS will publish its third quarter results on Tuesday (tomorrow). According to analysts, the bottom line is likely to be a loss.
While the focus at the end of August when the figures for the second quarter were presented was still on the question of what exactly should happen to CS, the focus is now likely to return to the operational business performance. The UBS results for the third quarter include Credit Suisse's performance over the entire period for the first time, after only the month of June was included in the Q2 results.
Accordingly, analysts are expecting a significant loss in the reported figures, whereby according to analyst estimates collected by the news agency AWP, a loss in the range of 400 and 500 million US dollars is expected for both earnings before taxes and net income.
Adjusted figures
However, the adjusted figures - i.e. excluding extraordinary items such as integration costs, etc. - will be more meaningful in terms of operating performance. In the previous quarter, the results were still heavily influenced by special factors due to the CS takeover: On balance, the bank had posted a record profit of almost 29 billion US dollars.
According to the information provided at the end of August, UBS aims to achieve a break-even pre-tax result on an adjusted basis for the period from July to September. The actual figures are unlikely to deviate too much from this, as the figures for two of the three quarterly months were already more or less known when the target was set. The bank even expects a pre-tax profit for the entire second half of 2023, although no figures were given.
CS business stabilized?
Overall, observers will be keeping a close eye on the extent to which the result at the new subsidiary CS has stabilized. With regard to the outflows there, UBS had spoken of stabilization over the months of June to August, so the focus will be on developments in September and October.
In the entire first half of 2023, net asset outflows amounted to around CHF 100 billion, of which CHF 74 billion was in wealth management. Overall, however, the net new money inflows for the bank as a whole should not hold too much potential for surprises, as UBS had already reported a figure of +8 billion US dollars for the months of July/August in the combined wealth management business.
From an operational perspective, particular attention will also be paid to statements on client activity and the performance of the Investment Bank in the midst of the intensive integration process, according to a preview from ZKB. Last but not least, there will be a strong focus on costs in connection with the integration. It will be interesting to see how much has already been saved when the figures are presented.
News on downsizing?
Overall, the management has announced cost savings of over 10 billion dollars by the end of 2026 compared to 2022. As costs at the banks are largely personnel costs, staff reductions are one of the most important savings factors. According to Ermotti, there will be 3,000 redundancies in Switzerland over the next two years. There has been speculation in the media around the world that up to 35,000 of the 120,000 jobs in total will be cut. However, it is questionable whether there is any news on this.
Many people have already left CS anyway. According to UBS, by the middle of the year, 8,000 fewer people were already working for CS than at the end of 2022. The fact that this includes employees that UBS would have liked to keep is hardly surprising and can hardly be avoided in a large-scale merger. One prominent example of this is Sabine Heller: she was appointed Director for the Zurich region at the end of September, but left UBS for Lombard Odier before taking up her post.
Details on the bad bank
As part of the quarterly reporting, there should also be further details on the liquidation of those CS businesses that UBS does not wish to retain. These are grouped together in a "bad bank" called "Non-Core and Legacy".
Above all, UBS management wants to get rid of a large part of the CS Investment Bank. As at mid-2023, risk-weighted assets (RWA) amounted to around 55 billion dollars. Around half of these are to be reduced by the end of 2026.
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