UBS
26.45
CHF
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The big bank is also making good progress with the integration of Credit Suisse, which it took over around a year ago.
The new UBS Group earned $1.76 billion in the first three months of the year, it announced on Tuesday. In the previous year, the bank – without CS – made a profit of 1.03 billion.
The starting quarter of 2024 is the third quarter in which the acquired CS is fully included. In the two previous quarters – the third quarter and fourth quarter of 2023 – UBS had reported a loss after the result in the second quarter of 2023 exploded to almost 30 billion in profit for accounting reasons due to the CS takeover.
High integration costs
Before taxes, there was now an increase of $2.38 billion in the first quarter of 2024. On an adjusted basis it was 2.62 billion. This excludes positive valuation effects of $779 million and integration-related costs of $1.02 billion.
Revenues rose 17 percent to 12.7 billion compared to the previous quarter. In the first quarter of 2023 or before the takeover of Credit Suisse it was 8.7 billion. With expenses in the reporting quarter of 10.3 billion, the cost-income ratio was still high at 80.5 percent. The key figure, which is important for a bank, should be reduced to below 70 percent by the end of 2026.
Results improved particularly strongly in the areas of global asset management (GWM) and investment bank compared to the previous quarter. In asset management – the core business – the big bank was also able to acquire additional customer money. The net inflow of new money in this area amounted to 27.4 billion. There were also net new deposits of $8 billion.
Overall, the UBS Group managed assets across all areas amounting to $5,848 billion at the end of March 2024, compared to $5,714 billion at the end of 2023, of which $4,023 billion was in GWM.
Merger of legal entities is imminent
The big bank is already expecting the next important step in the CS integration at the end of the month. The merger of the legal entities UBS AG and Credit Suisse AG, which are still managed separately, is expected to be completed by the end of May 2024.
Further progress in savings has also been made. According to the announcement, gross annual cost savings of around 1 billion were achieved in the first quarter. By the end of 2024, another $1.5 billion will be added. This means that the bank is moving a little faster than previously promised. By the end of 2026, UBS wants to reduce annual costs by a total of around $13 billion compared to 2022.
UBS’s workforce fell by almost 1,300 in the quarter to around 111,550 full-time positions. Before the takeover at the end of 2022, the two banks at the time were combined – around 123,000. According to recent media speculation, UBS plans to have a total workforce of 85,000 by the end of the integration. The restructuring is only likely to begin properly after the merger of the legal entities and the subsequent integration of the Swiss national companies (UBS Switzerland and CS Switzerland), which is still planned for the third quarter of this year.
Capital repatriation confirmed
The progress of the integration is also reflected in the “Non-Core and Legacy” (NCL) resolution unit, which includes the business areas from which UBS wants to exit. In particular, the trading business of the former CS is to be massively reduced.
At the group level, risk-weighted assets (RWA) fell by $20 billion to $526 billion in the first quarter. 16 billion of these came from the NCL area alone. The exit from certain areas went “better” (less loss-making or more profitable) than recently expected. The aim is to continue to exit positions more quickly but at an “optimal” price.
As usual, UBS is cautious about the future. However, UBS confirmed its medium and long-term financial goals. And nothing stands in the way of the capital repayment planned for the current year. The bank wants to start buying back shares again and acquire shares worth up to $1 billion in 2024. The dividend per share is expected to increase in the mid-teen percent range. Recently, discussions about stricter capital requirements caused uncertainty in the market.
UBS continues to make progress with cost savings
UBS is making progress with its cost savings and has further reduced its workforce. In the first three months, costs fell by another approximately $1 billion.
From January to the end of March, UBS’s workforce fell by a further 1,300 to 111,549 full-time positions, as can be seen from the figures published on Tuesday. At the end of 2022, UBS and Credit Suisse together still employed around 123,000 people.
UBS’s combined cost savings compared to the level of the 2022 financial year have now reached around 5 billion francs on an annualized basis, writes UBS. This corresponds to almost 40 percent of the total cost savings of 13 billion targeted by 2026. Further gross savings of around $1.5 billion are expected to be achieved by the end of 2024.
Swiss merger in the 3rd quarter
Further cost savings are also likely to result from the merger of the two operating companies UBS AG and Credit Suisse AG, which has now been announced for May 31, 2024. In the USA, the transition to an intermediate holding company is scheduled to take place in the second quarter.
In Switzerland, the merger of Credit Suisse (Switzerland) and UBS Switzerland is still scheduled for the third quarter of 2024. The measures are also intended to facilitate the transition of all customers to the UBS platforms, which is scheduled to begin “later this year”.
Further SNB aid repaid
The big bank has also further reduced the SNB liquidity assistance (Emergency Liquidity Assistance ELA): on May 6, UBS paid back a further 9 billion francs to the Swiss National Bank. This brings the repayments to date to 29 billion francs, it is said. UBS now wants to repay the remaining 9 billion francs “in the coming months”.
Overall, the bank continued to reduce its risk-weighted assets (RWA): at group level, RWA fell by 20 billion to 526 billion. This was not least due to the further shutdown of assets in the processing unit (non-core to legacy). In addition, it also benefited from balance sheet management initiatives across its core business and from exchange rate effects.
UBS shares jump after strong Q1 figures
UBS shares started trading on Tuesday with a price jump. The big bank’s figures massively exceeded analysts’ estimates.
Ultimately, UBS names gained 7.59 percent to 26.79 francs, the daily high was even 27.42 francs. After the UBS share was 4.6 percent below its level at the end of 2023 before today’s trading day, it is now clearly above this level again.
After a loss in the fourth quarter of 2023, UBS clearly returned to the black at the beginning of 2024. It performed significantly better than expected in terms of earnings as well as operating profit and net profit and in some cases completely pulverized analysts’ estimates. Profit before taxes, for example, was around twice as high as forecast (AWP consensus), and net profit was almost three times as high.
Analysts are also positive in their initial comments. The results showed that in an improved environment the bank could both increase earnings and reduce costs in line with expectations, the ZKB experts wrote in their assessment.
Vontobel speaks of a massive jump in profits thanks to higher income and lower costs. However, the responsible analyst noted that the income was primarily generated in the settlement unit (NCL) and was correspondingly of lower quality. However, he continues, all operating units have delivered “solid results” and accordingly sees upward potential for his profit estimates.
The analysts at the US broker Jefferies particularly emphasize the strength in the main business, for example in the core business of global asset management, but also in the Swiss business.
“On the right track” with CS integration
The progress made in terms of cost savings is also viewed positively. In total, around 5 billion of the 13 billion targeted by the end of 2026 have already been achieved in cost savings. The bank still appears to be on track to implement the integration of Credit Suisse in accordance with the plan, the ZKB continued.
The only issue that causes a certain degree of uncertainty is the issue of capital repatriation. Previous information on the targets for the capital distribution in 2024 was confirmed in total (dividend increase in the mid-teens and share buybacks of up to $1 billion).
However, statements made earlier about share buybacks in the following years were not mentioned, at least in the media release. However, in the call for analysts that began at 9 a.m., Ermotti confirmed this ambition: in 2026, buybacks should exceed the original levels before the CS takeover. However, the UBS CEO restricted the fact that future decisions regarding additional capital requirements could have an impact on UBS’s return of capital to its shareholders.
ys/uh/tp/gab
Zurich / Bern (awp)