Swiss bank UBS on Wednesday posted a quarterly profit that was double the market forecast, buoyed by investment banking and larger-than-expected savings from the integration of its one-time rival Credit Suisse.
The net profit of $1.1 billion for the April-June period beat the $528 million forecast in a company-provided poll for what were UBS’s first results since it formally completed its merger with Credit Suisse in May.
Shares in UBS rose 3.6 per cent by 1149 GMT, outperforming the European banking sector.
Results varied across divisions. Investment banking revenues surged, as seen at peers, and performance from its non-core and legacy unit was also strong, analysts noted.
Switzerland’s largest bank said savings from the Credit Suisse integration were occurring faster than forecast, although Deutsche Bank analysts said numbers at UBS’s Global Wealth Management and Personal and Corporate Banking divisions were below expectations, taking some shine off the results.
In a statement, UBS CEO Sergio Ermotti said the first-half results reflected “significant progress” the bank had made since buying Credit Suisse, leaving it well positioned to meet targets and return to pre-acquisition levels of profitability.
“We are now entering the next phase of our integration, which will be critical to realise further substantial cost, capital, funding and tax benefits,” Ermotti said.
UBS said it had made another $0.9 billion in gross cost savings, hitting about 45 per cent of its cumulative annualised target.
Its goal is to reach $13 billion in savings by the end of 2026, and the bank now expects to achieve $7 billion of that this year, having previously eyed about $6.5 billion.
UBS said it has reduced non-core and legacy risk-weighted assets by 42 per cent since the second quarter of last year, including an $8 billion decline quarter-on-quarter.
Meanwhile, net new asset inflows were $27 billion, even as UBS executives warned the outlook was clouded by geopolitical tensions, the U.S. election race and market volatility.
UBS acquired its longtime competitor in March 2023 in a rescue engineered by Swiss authorities when Credit Suisse collapsed after a string of setbacks and scandals.
Fragility
“The market environment is quite volatile, and there are elements of fragility that we see,” Ermotti told analysts.
The bank said it expected to incur around $1.1 billion of integration-related expenses in the third quarter and that the pace of gross cost savings would decline modestly sequentially. Those expenses should be offset partly by some $0.6 billion accretion of purchase accounting effects, it said.
UBS also saw moderate net interest income headwinds from mix shifts in Global Wealth Management and the effects of the Swiss National Bank’s second interest rate cut, not yet captured in UBS’s deposit pricing in personal and corporate banking.
UBS is factoring in up to two more SNB rate cuts in 2024, CFO Todd Tuckner said.
“We don’t expect the calm of the first half of the year to repeat given the geopolitical outlook,” he said.
UBS reported a nearly $29 billion second-quarter profit in 2023 resulting from a one-off gain from acquiring Credit Suisse far below its value. That was followed by two straight quarters of losses caused by the cost of absorbing its rival.
Investors had by this summer pushed up the bank’s stock price by over two-thirds since it bought Credit Suisse. However, UBS shares lost ground during recent market turmoil.
Markets are also watching Swiss efforts to tighten banking rules so there is no repeat of the Credit Suisse debacle.
The Swiss government in April presented a raft of proposals, sketching out how UBS would need to hold additional capital. UBS has flagged “serious” concern about the prospect.
Ermotti said he expected to have more clarity on capital requirements by the turn of the year, and noted that Switzerland’s introduction of Basel III capital adequacy rules in January 2025 would be a “short term disadvantage” for UBS.
So far, the Basel III situation looked manageable, but if other jurisdictions did not converge fully to the rules in the next year or two, it would be more problematic, he said.
If UBS can manage the Credit Suisse integration without major hiccups, many analysts remain bullish on its prospects.
“Longer-term structurally, we see UBS as the number one global wealth management player, especially in ultra-high net worth globally,” JPMorgan analysts wrote.