UBS pleases investors with billion-euro quarterly profit
Published: Tuesday, May 7th 2024, 14:50
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Following the takeover of Credit Suisse around a year ago, UBS has made it back into the black. The quarterly results were greeted with enthusiasm on the stock market and the share price jumped. Discussions about stricter capital requirements for what is now the only major Swiss bank were also in the spotlight.
After two loss-making quarters, UBS earned 1.76 billion US dollars in the first quarter of the year, as announced on Tuesday. This massively exceeded analysts' forecasts. The result was driven by an improved market environment, faster than expected cost savings and the accelerated winding down of business areas from which UBS intends to exit.
Before taxes, this resulted in a plus of 2.38 billion dollars. Integration costs of 1.02 billion dollars depressed the result, while positive valuation effects supported it. Compared to the previous quarter, income rose by 17 percent to 12.7 billion dollars. However, with expenses of 10.3 billion, the cost/income ratio was still high at 80.5 percent. This key ratio, which is important for a bank, is to be reduced to below 70 percent by the end of 2026.
The core business - Global Wealth Management (GWM) - also performed well and the big bank was able to acquire further client assets. At the end of March 2024, the UBS Group managed assets totaling USD 5,848 billion across all areas, compared to USD 5,714 billion at the end of 2023.
Integration is progressing
The big bank is also making good progress with the integration of CS, which was acquired around a year ago. The big bank expects to take the next important step as early as the end of this month: the legal entities UBS AG and Credit Suisse AG, which are still managed separately, are then to be merged. The integration of the Swiss country organizations (UBS Switzerland and CS Switzerland) should then follow in the third quarter. After that, the restructuring will really get underway.
By the end of 2026, UBS aims to reduce its annual costs by a total of around 13 billion dollars compared to 2022. UBS will not officially state how many jobs will be affected. However, the majority of the job cuts are certainly not yet complete. At the end of March, the workforce of the combined group stood at 111,549 full-time positions, around 30 percent in Switzerland.
According to the latest media speculation, a total of 85,000 employees are still planned after the end of the integration. Before the takeover at the end of 2022, there were around 123,000 jobs at the two banks combined.
The progress of the integration was also reflected in the settlement unit. In particular, the trading business of the former CS is to be massively downsized. According to statements, the further exit from certain areas went "better" (less loss-making or more profitable) than expected in the first quarter.
Capital discussion unsettles
Apart from the quarterly figures, analysts and market observers were particularly focused on discussions about additional capital requirements on Tuesday. If higher requirements were to be imposed, this would probably have an impact on UBS's business and also on the return of capital to shareholders (dividends, share buybacks).
Not surprisingly, UBS CEO Sergio Ermotti once again spoke out vehemently against stricter requirements for the big bank on Tuesday. The regulations already in force today alone would mean additional requirements totaling around 20 billion dollars, he said. Furthermore, in his opinion, UBS could be wound up. And if the big bank were to fail, the shareholders and bondholders would bear the risk and not the taxpayers.
The discussion was triggered by the Federal Council's report on banking stability around a month ago. According to Finance Minister Karin Keller-Sutter, UBS may have to build up additional capital in the region of CHF 15 to 25 billion. However, only the conclusion of the PUK into the downfall of CS, whose report is expected by the end of the year, is likely to provide new insights. The figures being passed around are pure speculation, said Ermotti.
UBS was up 9.3 percent at CHF 27.22 at around 2 p.m. on the stock exchange. The market was talking about a "very encouraging quarter". The progress made with the integration was also praised, although there is still a long way to go before it is completed, with many uncertainties.
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