On Thursday, UBS reported a second-quarter profit of $28.88 billion following its takeover of Credit Suisse. This mainly resulted from the negative goodwill generated by the acquisition - amounting to $28.93 billion. Once other factors were taken into account, such as integration costs and acquisition expenses, the underlying pre-tax profit came to $1.1 billion. Meanwhile, Credit Suisse's subsidiary posted a Q2 net loss of 9.3 billion Swiss francs.
At the start of trading in Zurich on Thursday, shares of UBS rose to their highest level since late 2008 following the release of the Swiss bank's first quarterly report since its takeover of Credit Suisse. With $28.88 billion reported net profit, UBS exceeded analyst estimations of $12.8 billion. This was largely due to negative goodwill, which stood at $28.93 billion. This represents the fair value of assets acquired in the merger above the purchase price of $3.4 billion. CEO Sergio Ermotti told CNBC's Joumanna Bercetche that the negative goodwill was necessary to support $240 billion in risk-weighted assets and the funds to carry out Credit Suisse's restructuring, as their business model had become unsustainable.
At the start of trading, UBS shares had risen by 4.9%. Additionally, CET1 capital ratio, a measure of bank liquidity, had grown to 14.4%, a notable rise from the 14.2% in the second quarter of 2022. With return on tangible equity (excluding negative goodwill, integration-related expenses and acquisition costs) standing at 4.3%, the CET1 leverage ratio stood at 4.8%, compared to 4.4% a year ago.
In the acquisition, Credit Suisse's Swiss bank will be merged into UBS, with the legal entities set to join forces in 2024. UBS CEO Sergio Ermotti, commenting on the choice to amalgamate the two banks, stated that this was the most beneficial route for UBS, its stakeholders, and the Swiss economy.
This integration may spark some controversy in Switzerland, as over 1,000 jobs could be lost due to the restructure, with a further 2,000 layoffs expected due to the wider restructuring of Credit Suisse. The rescue deal was overseen by Swiss authorities in March, and UBS has recently ended a 9 billion franc ($10.24 billion) loss protection agreement and a 100 billion franc public liquidity backstop that were implemented when the takeover was agreed.
Ermotti emphasized that clients will nonetheless continue to obtain the higher level of service they are used to, owing to increased offerings, enhanced capabilities, and a global reach.UBS is targeting to make gross cost savings of no less than $10 billion by the time the integration of Credit Suisse Group's operations is finalized in 2026.The Swiss lender had originally planned to publish its second-quarter results on July 25, but they were delayed until after the Credit Suisse takeover on June 12.UBS's net profit had plunged by 52% year-on-year in the prior quarter, due to a U.S. mortgage-backed securities litigation problem.As of Wednesday's market close, UBS's stock had increased almost 30% since the start of the year, as per Eikon.Credit Suisse, in its last statement as an autonomous company, declared a Q2 net loss of 9.3 billion francs, with net assets streaming out of the bank to the tune of 39.2 billion francs, and Assets Under Management (AUM) plunging 3%.Needless to say, even after the rescue, the confidence of clients that led to the bank's near-downfall in March has yet to be restored.
UBS remarked that the attrition rate had been gradually decreasing, and they are determined to keep Credit Suisse clients and customers as much as they can in order to ensure the enormous merger is successful in the long term. Ermotti revealed to CNBC on Thursday that both UBS and Credit Suisse had noticed an increase in deposit inflows during the second quarter and the current one thus far, which was proof that customers are staying dedicated. For the second quarter, the unified group gained $23 billion in net inflows into deposits, and out of this, $18 billion was from Credit Suisse's wealth management and Swiss bank divisions. Although Credit Suisse still had net asset outflows, UBS said these had decelerated during the second quarter and become positive after the merger was finished in June. Ermotti added that Credit Suisse lost around $200 billion in 2022 and 2023, and they are now seeing a part of that coming back, and their intention is to recover as much as possible, which is not easy but is their ambition. UBS' key global wealth management business earned $16 billion in net new money over the three months till the end of June, which was the highest second-quarter net inflows for more than a decade.
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