UBS back in profit after Credit Suisse takeover losses

ZURICH

Swiss banking giant UBS on Tuesday said first quarter net profit rose 71 percent to nearly $1.8 billion, far exceeding expectations, after two quarters in the red due to the mammoth takeover of Credit Suisse.

Switzerland's biggest bank said its turnover increased by 46 percent to $12.7 billion, largely thanks to its investment banking arm, which had been the key part in the mega-merger.

UBS shares soared on the Swiss stock exchange, rising more than nine percent at 27.20 Swiss francs each in midday trading.

UBS's investment banking revenues increased by 16 percent, driven by a more favourable market climate and by the good performance of IPOs and mergers and acquisitions.

In March 2023, Swiss authorities strongarmed UBS into the $3.25-billion takeover to prevent Credit Suisse from going under with catastrophic consequences for the global financial system.

The results for the first three months of 2024 were a moment for the bank to review progress since the integration of Credit Suisse.

"A little over a year ago, we were asked to play a critical role in stabilising the Swiss and global financial systems through the acquisition of Credit Suisse and we are delivering on our commitments," said UBS chief executive Sergio Ermotti.

"This quarter marks the return to reported net profits and further capital accretion — a testament to the strength of our business and client franchises and our ability to deliver significant progress on our integration plans while actively optimising our financial resources."

Cost reductions

UBS posted a $785 million loss in the third quarter of 2023, and was down $279 million in the fourth quarter.

Many analysts expected UBS's results to return to positive territory following the 2024 first quarter figures published by US banks in the same league.

Analysts surveyed by the Swiss financial newswire AWP had on average expected UBS to post a net profit of $637 million.

But Switzerland's leading bank far exceeded expectations, with Swiss investment managers Vontobel describing the results as "massively above estimates".

UBS continued its cost reductions, making $1 billion in additional savings during the first quarter, with the cumulative figure since the merger amounting to $5 billion, or nearly 40 percent of the $13 billion target for 2026.

By the end of the year, the group hopes to achieve another $1.5 billion in savings.

Analysts with the Zurich Cantonal Bank said the results showed that in an improved environment, UBS could both increase revenues and reduce costs.

"The bank therefore still appears to be on track to implement the integration of Credit Suisse in line with the target plan," ZKB said.

Regulation on the horizon

Though Tuesday's first quarter figures were better than expected, investors are watching to see how UBS deals with looming tighter regulation for Switzerland's banking sector.

The merger of the two largest banks in the country created a megabank of troubling size in relation to the Swiss economy.

The Swiss government last month unveiled a project aimed at toughening the rules on banks, regarding both bonuses and the capital they must set aside to be able to face a crisis.

According to calculations by some experts, UBS may need to build an additional liquidity cushion of $15 billion to $25 billion — figures that Finance Minister Karin Keller-Sutter told a newspaper were plausible.

Ermotti told a conference with analysts it was "an important discussion for the country", but while hoping for a reasonable outcome it was still "too early to speculate on the impact" the changes might have.

In the 12 months following the Credit Suisse takeover, UBS shares gained 59 percent on the stock market.

However, since April, shares have fallen back as investors worry about the additional amounts that the bank will have to put to one side.