Swiss banking giant UPS On Wednesday, it posted big profits, after completing the first wave of client exodus following its merger with collapsed local rival Credit Suisse.
Net profit attributable to shareholders was $1.43 billion, compared to an average forecast of $667.5 million in an LSEG survey of analysts.
The group's revenue reached $12.33 billion, exceeding analysts' expectations of near $11.78 billion.
Other highlights of the third quarter included:
Operating profit before tax was $1.93 billion, up from a loss of $184 million in the same quarter last year. Return on tangible equity reached 7.3%, compared to 5.9% during the second quarter. The CET 1 capital ratio, a measure of banks' solvency, was 14.3%, compared to 14.9% in the second quarter.
The bank said it expects to complete its planned $1 billion stock repurchase program in the fourth quarter and intends to continue repurchases in 2025.
UBS shares rose 2.4% at 08:33 AM London time.
“We're starting to see the benefits of our diversified business model and global reach,” CEO Sergio Ermotti told CNBC's Annette Weisbach on Wednesday of the bank's forecast-beating third-quarter results. “We're also (in) a market environment that has been challenging but has also presented opportunities for investors to position themselves. So I think it's a good mix of factors.”
UBS's investment banking division shined in the third quarter, with the branch's net income rising 36% year-over-year, largely due to performance in equity derivatives, FX and rates revenue. The bank also noted an increase in global banking services.
Meanwhile, global wealth management fell by 6% year-on-year, as a result of lower deposit margins and weaker loan income, following a decline in average volumes.
UBS turned around profit in the first quarter of 2024 after two quarterly losses linked to the acquisition of stricken bank Credit Suisse – an extensive operation now complete that is steeped in warnings from the Organization for Economic Co-operation and Development about the “new risks and challenges” it poses to the broader Swiss economy and government. Concerns about capital requirements for the resulting banking force. UBS defends that it is not “too big to fail.”
The banking consortium prompted UBS to cut expenses, with the banking giant saying in its second-quarter earnings statement that it expects to end 2024 with cumulative total savings from the Credit Suisse deal of $7 billion, out of a $13 billion target by 2026. The numbers are comparable to the baseline. For the year 2022.
A banner at UBS's head office in New York, US, on Tuesday, March 21, 2023.
Bloomberg | Bloomberg | Getty Images
UBS still faces the lofty tasks of integrating its IT system with Credit Suisse's, along with migrating clients — with the latest transition set to take about 18 months, Reuters reported earlier this month. The bank said on Wednesday that in October it completed the migration of global wealth management client accounts in Luxembourg and Hong Kong to UBS platforms and intends to migrate global wealth management client accounts held in Singapore and Japan by the end of the year.
Next steps
A year and a half after UBS's aggressive merger with Credit Suisse, the onus is now on Ermotti to chart the bank's course in the face of a landscape shaped by geopolitical volatility, low interest rates and pressures to keep up with double-digit profits. Growth of US rivals, such as Goldman Sachs and Morgan Stanley. Domestically, UBS operates within an economy defined by a strong economy Swiss franc Annual inflation fell to just 0.8% in September, raising questions about further monetary policy easing by the Swiss National Bank – and the impact of such interventions on the profitability of commercial lenders.
Asked how much interest rate declines would impact UBS's upcoming performance, Ermotti told CNBC: “Very little. So, I mean, relatively simply, and certainly with banks and other banking models, we only have 20% of our revenue coming from net interest income.” “
“In fact when we see interest rates fall, we see clients in some cases using more leverage… so I think we almost have an offsetting factor,” he added. “However, lower interest rates for the foreseeable future will still have a slight impact on our earnings,” he added. But it will be offset, as I said, by transaction volume and fee-based business.
However, the UBS boss emphasized continued volatility on the Q4 horizon when it comes to broader global markets.
“Obviously the outlook for the fourth quarter is still somewhat influenced by the uncertainties that we see on the macroeconomic and geopolitical front, and we have the upcoming elections in the United States, which of course will not be a quiet event,” he said.
“The outlook is positive (continued strong client activity),” Vontobel analysts said in a note, stressing that the bank’s third-quarter results exceeded expectations on higher-than-expected revenues across all operating divisions.
“Migrating the data of 1.3 million customers is the next big challenge. However, the first wave of customer account migration has been successfully completed and the bank is (so far) ahead of schedule on the issues it can control.”
RBC analysts described UBS's results as “strong”, but pointed to persistent doubts arising from the bank's potential too-big-to-fail status and support from “good earnings momentum and merger execution”.
UBS's results come after Deutsche Bank, Germany's largest bank, won last Wednesday, joining a series of third-quarter reports this week from European banks, including BNP Paribas and Santander.
— CNBC's Ganesh Rao contributed to this report.
