UBS has recently announced a historic quarterly profit, setting a record for the largest ever reported by a bank. This achievement, with a staggering $29 billion (€26.6 billion) gain, is directly tied to its acquisition of Credit Suisse.
Despite facing opposition on both local and political fronts, UBS is determined to move forward with integrating Credit Suisse’s domestic business. This move is expected to result in significant job cuts and branch closures.
UBS extended a lifeline to Credit Suisse five months ago, and the $29 billion pretax profit they’ve now reported is primarily attributed to the accounting gain stemming from the $3.4 billion takeover. To put this into perspective, the previous highest quarterly bank profit was $14.3 billion, reported by JPMorgan in early 2021.
UBS has outlined its plan to keep Credit Suisse’s domestic business separate until legal integration with UBS is achieved next year. Full integration of both Swiss entities is projected for 2025, at which point Credit Suisse’s domestic sponsorship commitments will come to an end.
While the international branches of both banks are already being merged, Credit Suisse reported a substantial pretax loss of 9.3 billion Swiss francs ($10.6 billion) for the second quarter due to customer withdrawals totaling SFr39 billion.
The decision by UBS to absorb Credit Suisse’s domestic business and eliminate its branding, which dates back 167 years, has been met with significant controversy. This merger marks the first time that two globally systemically important financial institutions are combining forces. A public poll shortly after the merger was announced in March revealed that three-quarters of Swiss citizens opposed this domestic business merger.
As Switzerland gears up for national elections in October, the impact of this merger on two of the country’s largest companies remains a central issue. UBS CEO Sergio Ermotti defended the decision, stating that “full integration is the best outcome for UBS, our stakeholders, and the Swiss economy.”
UBS has also revealed plans to substantially complete the integration of the wider Credit Suisse group by 2026, accompanied by a targeted cost reduction of $10 billion.
Mr. Ermotti acknowledged that UBS plans to make 3,000 redundancies in Switzerland in the coming years, primarily through staff attrition rather than immediate replacements.
The $29 billion accounting gain, referred to as negative goodwill, reflects the difference between the value of Credit Suisse’s assets on its books and the lower price UBS paid for them. While analysts had expected an even higher gain of $33 billion, Credit Suisse’s losses this year and UBS’s writedowns on certain Credit Suisse assets affected the final figure. Excluding this accounting gain, UBS reported a $1.1 billion pretax profit for the quarter.
UBS’s latest results also highlight a 4% year-on-year decrease in wealth management profit, a 54% rise in retail and corporate banking profit, a 91% drop in asset management profit primarily due to the sale of a stake in a fund manager last year, and a 66% drop in investment banking profits.
The release of these results was delayed by five weeks to allow UBS to formulate its plan for Credit Suisse. During this period, UBS resolved several legacy legal and regulatory disputes, including a $1.4 billion settlement in a US regulatory probe related to the alleged mis-selling of residential mortgage bonds leading up to the 2008 financial crisis. This marked the conclusion of the last remaining case brought by the US government against major banks regarding this issue.
Notably, UBS has declined to utilize an SFr9 billion (€9.3 billion) backstop from the Swiss government designed to protect it from losses following the Credit Suisse acquisition. Additionally, it terminated an SFr100 billion liquidity lifeline offered by the Swiss National Bank during the spring banking sector turmoil that ultimately culminated in the Credit Suisse takeover.
Since announcing its rescue of Credit Suisse in March, UBS shares have risen nearly 40%, outperforming the Euro Stoxx Banks Index, which tracks European lenders and has seen a 16% increase over the same period.
