UBS back in profit after Credit Suisse takeover losses

ZURICH — Swiss banking giant UBS on Tuesday said first quarter net profit rose 71 per cent 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 per cent to $12.7 billion, largely thanks to its investment banking arm, which had been the key project in the mega-merger.

Investment banking revenues increased by 16 per cent, 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 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 per cent of the $13 billion target for 2026.

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

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.

UBS's figures for the first quarter of 2024 are difficult to compare with those of the same period last year, which reflected its performance as a single entity before the merger was formalised in June 2023.

In the first quarter of last year, UBS had posted a net profit of just over $1 billion.

Regulation on the horizon 

Though Tuesday's first quarter figures are better than expected, investors are waiting for clarification concerning the impact on UBS of the looming tightening of rules 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.

In the 12 months following the Credit Suisse takeover, UBS shares gained 59 per cent 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.

According to calculations by some experts, UBS may need to build an additional liquidity cushion of $15 billion to $25 billion.

In an interview with the Tages-Anzeiger newspaper, Finance Minister Karin Keller-Sutter described these figures as plausible.

Swiss investment managers Vontobel said investors would be eager to hear UBS's views on the government's proposals for new regulation on banks deemed "too big to fail".

"However, given the lack of details, it is unlikely that UBS will be able to provide any guidance," it said.

As for the outlook, UBS said that although monetary easing was expected in the eurozone, the United States and Switzerland, "the timing and magnitude of rate cuts by central banks are unclear, as inflation remains above their target range".

"In addition, the ongoing geopolitical tensions, combined with consequential elections in several major economies, continue to create uncertainty," it said.