UBS Scores Historic $29B Profit Defying Critics in Credit Suisse Deal
UBS recently reported a record-breaking quarterly profit of $29 billion, largely attributed to its acquisition of Credit Suisse, despite facing local and political opposition due to expected job cuts and branch closures.
This profit surge is primarily due to an accounting gain related to the $3.4 billion takeover, far surpassing the previous record of $14.3 billion held by JPMorgan in 2021. Excluding this gain, UBS recorded a $1.1 billion pre-tax profit for the quarter.
UBS plans to run Credit Suisse’s domestic business separately until legal integration in the coming year, with full integration expected by 2025. This merger between two significant financial institutions has sparked public concern and opposition in Switzerland, particularly in the lead-up to national elections.
UBS CEO Sergio Ermotti defends the merger, emphasizing its benefits for UBS, stakeholders, and the Swiss economy. The bank aims to complete the broader Credit Suisse group’s integration by 2026, targeting cost reductions of at least $10 billion, primarily through natural attrition rather than staff replacement.
The $29 billion accounting gain, known as negative goodwill, stems from the difference between Credit Suisse’s asset value on its balance sheet and the price paid by UBS. Other financial results include:
- A 4% decrease in wealth management profit.
- A 54% increase in retail and corporate banking profit.
- A 91% drop in asset management profit (partly due to fund manager stake sales).
- A 66% decline in investment banking profits.
UBS delayed the release of these results by five weeks to formulate its Credit Suisse plan. The bank has also settled a $1.4 billion US regulatory probe related to mis-selling residential mortgage bonds in the 2008 financial crisis.
Notably, UBS declined to utilize an SFr9 billion Swiss government backstop for Credit Suisse acquisition losses and has terminated an SFr100 billion liquidity lifeline offered by the Swiss National Bank.
Since agreeing to rescue Credit Suisse in March, UBS shares have risen nearly 40%, outpacing the Euro Stoxx Banks index’s 16% increase. On Thursday morning, UBS shares surged by 6%, reaching their highest level since 2008.