Zurich (Reuters) – Shortly before taking over struggling rival Credit, major bank UBS posted a slump in profits.
Provisions for legal legacy issues halved the result to $1.03 billion, as the Swiss company announced on Tuesday. Nevertheless, the wealth manager for the rich and super-rich sees himself well prepared to save Credit Suisse. “UBS is stronger today than ever before,” said new CEO Sergio Ermotti. Customers would also recognize this and entrust more money to the bank.
The flight of wealthy investors to safe investment havens gave UBS a tailwind in the first quarter. From January to March, the bank raised $28 billion from millionaires and billionaires. Extrapolated over the year, this corresponds to four percent of the stock. In the last ten days of the month alone, seven billion dollars flowed into the institute after the announcement of the Credit Suisse purchase. “This is further evidence of how much customers are turning to us for stability,” said Ermotti.
Initial discussions indicated that customers would recognize the value of the combination. Nevertheless, Ermotti warned of possible setbacks. “There is a lot to do and difficult decisions will have to be made in the coming months. Restructuring does not happen in a straight line, we know that from our own experience.”
The takeover of Credit Suisse is the first merger of two globally systemically important banks since the financial crisis. With the three billion franc deal, UBS can make a comparatively cheap leap in growth. But the Swiss number one never tires of emphasizing how great the integration risks are. Analysts also point out that both banks could lose customers who have accounts with both institutions and now do not want to put all their eggs in one basket.
CS-DEAL AS “ULTIMATE CONSIDERATION”
The crisis-plagued Credit Suisse suffered net asset outflows of 61.2 billion francs in the first quarter. The outflows have meanwhile declined, but there has not yet been a trend reversal, the money house said on the previous day. A company spokesman said that shifts from Credit Suisse customers were not the main driver of the inflows at UBS. In fact, the deals of Wall Street houses already showed that customers were shifting funds from smaller banks to the giants.
One trigger was the problems at the Silicon Valley Bank and other medium-sized houses. In Europe, Credit Suisse proved to be the weakest link in the chain. A bank storm in mid-March called the Swiss government into action. The government, along with the country’s central bank and financial markets regulator, orchestrated an emergency takeover of the 167-year-old company by UBS to prevent serious disruption in the country and possibly a global financial crisis. During the financial crisis, UBS had to be rescued by the state. “I see UBS being part of the solution as the ultimate reward for the government’s help at the time,” Ermotti said.
After exiting parts of investment banking and focusing on wealth management, UBS has proven resilient and predictable in recent crises. In the first quarter of 2023, the bank also met market expectations in terms of day-to-day business. The dip in earnings was primarily due to a $665 million increase in provisions for US residential mortgage litigation. An agreement in these cases, which date back 15 years, is likely to be imminent. “Our discussions with the US Department of Justice are well advanced,” Ermotti said. Alongside a tax evasion case in France, this is UBS’s last major remaining lawsuit.
The takeover of Credit Suisse should be dry and dry by the middle of the year. In the second half of the year, the group then wants to comment on the details of the integration and the new financial targets. So far, the bank has promised savings of $8 billion in connection with the acquisition. “If we find that this is not enough, we will have to take action,” said Ermotti. The new profit targets should at least correspond to the specifications for the previous UBS.
From an investor’s perspective, UBS presents itself very differently than it did before the Credit Suisse deal was announced, explained Vontobel analyst Andreas Venditti. Instead of high returns on capital, the bank now stands for a complex restructuring. On the stock exchange, UBS fell by 1.7 percent by noon.
(Reporter: Oliver Hirt. Edited by Olaf Brenner. If you have any questions, please contact the editorial board on +49 30 2201 33711 (for politics and economics) +49 30 2201 33702 (for companies and markets)
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