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UBS in Zurich: Things won't always go straight in the next three years

Photo: Denis Balibouse / REUTERS

The emergency takeover of Credit Suisse gave UBS a record profit in 2023. The bottom line is that the major Swiss bank earned around $29 billion, as UBS announced on Tuesday. The year before, the financial institution had made a profit of $7.6 billion - even before the acquisition. The driver of the improvement was a book profit from the first ever merger of two globally systemically important banks, as the purchase price corresponded to only a fraction of Credit Suisse's equity.

The big profit somewhat obscures the fact that things went less well in day-to-day business in the last two quarters of the 2023 financial year. The bottom line is that the new UBS Group posted a loss of $279 million in the fourth quarter, as it announced on Tuesday. In the third quarter it reported a loss of 785 million.

The bank wants to increase the dividend for 2023 by 27 percent to $0.70 per share. The group expects the merger of the legal entities UBS AG and Credit Suisse AG to take place by the end of the second quarter of 2024. After that, UBS wants to resume the share buyback program. This year, the bank is targeting buybacks worth up to a billion dollars.

UBS has stabilized Credit Suisse, explained CEO Sergio Ermotti and indicated that the coming years could still hold some uncertainties: “In the next phase of integration that is now underway, we are focusing on restructuring and optimizing the acquired business. Our path over the next three years will not always be straight, but the strategy is clear.«

Adjusted returns should continue to rise

For the first time, the financial institution commented in detail on the plans for the combined bank in the coming years. By 2025, the Zurich institute expects asset inflows of $100 billion per year in its core business with the rich and super-rich, and then around $200 billion per year.

UBS reiterates the requirement for an adjusted return on core capital of 15 percent and a cost-income ratio of less than 70 (2023: 105.7) percent - that is, for every dollar of income the bank then has to spend less than 70 cents. For comparison: Deutsche Bank has set itself the target of an efficiency ratio of less than 62.5 (2023: 75) percent by 2025.

In response to the first major digital bank storm in history, the Swiss government brought about a takeover of Credit Suisse by UBS last March. Credit Suisse's near-collapse was triggered by a series of scandals and failures that eroded trust in the country's second-largest institution.

Austerity measures are taking effect

But the forced marriage only pays off if expenses are cut. The group wants to reduce gross costs by $13 billion by the end of 2026. UBS had previously promised “over ten” billion dollars. A large part of this is likely to come from job cuts; according to experts, tens of thousands of jobs are at risk. The combined company's headcount fell to 112,842. At the end of the first quarter of 2023, UBS and CS still had a total of around 122,000 employees.

The austerity measures began to take effect faster than expected. In addition, millionaires and billionaires contributed new money to Credit Suisse earlier than expected. Investors rewarded this progress with a significantly higher valuation. Since the announcement of the transaction, which was described as the “deal of the century” given the purchase price of just three billion francs, UBS shares have gained 50 percent, leaving the European banking industry far behind.

In the first quarter, increasing customer activity compared to the previous quarter should support earnings, the bank said. In addition, there is the positive influence of higher interest rates, so that profits should also increase.

mik/Reuters