UBS Net Profit Beats Expectations on Credit Suisse Savings — 3rd Update

By Adria Calatayud

UBS Group reported a second-quarter net profit that beat analysts' estimates and said cost savings from its integration of former rival Credit Suisse would come faster than expected.

The Zurich-based banking group said Wednesday that it made steady progress on trimming costs and offloading noncore assets, while its key wealth-management arm continued to attract funds from wealthy clients and its investment bank benefited from stronger activity.

Net profit for the second quarter was $1.14 billion compared with $27.33 billion for the same period last year, when the bank's results were boosted by a multibillion-dollar accounting gain on its takeover of Credit Suisse that reflected the deal's knockdown price.

This was UBS's second quarterly net profit in a row and, like in the previous quarter, the result beat analysts' estimates by a wide margin. Analysts had forecast a net profit of $528 million, according to consensus estimates compiled by the bank.

The results sent shares in UBS more than 2% higher in European morning trade.

"We are well positioned to meet our financial targets and return to the levels of profitability we delivered before being asked to step in and stabilize Credit Suisse," Chief Executive Sergio Ermotti said.

UBS agreed to acquire Credit Suisse in March last year in a rescue deal engineered by Swiss authorities to stem a crisis at the troubled lender. The takeover was completed in June 2023 and, since then, UBS has been shedding assets it considers noncore, merging different entities and cutting jobs as part of its work to integrate its former rival.

The near-collapse of Credit Suisse also prompted the Swiss government to propose substantially higher capital requirements for UBS, a move that weighed on the bank's stock amid concerns it could affect future share buybacks or dividends. The bank said it continued to await further details on the plan to assess its full impact.

"We are now entering the next phase of our integration, which will be critical to realize further substantial cost, capital, funding and tax benefits," Ermotti said.

The bank said it now expects to end 2024 with cumulative gross savings from the deal of $7 billion, out of a target of $13 billion by 2026 compared with a 2022 baseline. It had previously aimed to deliver $6.5 billion in savings by the end of the year.

By June, UBS had delivered savings of $6 billion, including about $900 million in the second quarter. The bank said its pace of gross cost savings will decline modestly in the third quarter.

Cost reductions will shift to the group's core businesses from the noncore division, Chief Financial Officer Todd Tuckner said in a call with analysts. Cost savings will be mainly driven by work to migrate Credit Suisse client accounts to UBS platforms, which is due to start in the fourth quarter, he said.

At the end of the quarter, UBS cut its total staff--including personnel employed internally and external workers--by 3,500 compared with three months earlier and by 23,000 compared with the end of 2022, Tuckner said.

The bank reduced by $8 billion the risk-weighted assets of its noncore and legacy portfolio--which houses the assets it plans to exit--in the quarter, it said. This means the portfolio shrunk by 42% over the past year, it said. UBS forecast an underlying pretax loss of around $1.1 billion in the second half at the noncore and legacy unit.

Expenses related to the Credit Suisse integration and purchase-price allocation effects came to $1.37 billion in the quarter. UBS expects to book a further $1.1 billion in integration-related costs in the third quarter.

On an underlying basis, pretax profit was $2.06 billion compared with $891 million a year before and consensus estimates of $1.61 billion.

Analysts said UBS's results were mainly driven by its noncore division and its investment bank, rather than by its core businesses. A faster delivery on synergies from the Credit Suisse deal should provide some buffer against regulatory headwinds and the prospect of a more challenging operating environment, RBC Capital Markets analyst Anke Reingen wrote in a note to clients.

Revenue for the quarter rose to $11.90 billion from $9.54 billion, against consensus expectations of $11.55 billion. Revenue grew across all business units.

UBS's core global wealth management business attracted $27 billion in net new assets, in line with the inflows it recorded in the first quarter. The business benefited from positive inflows across all regions, UBS said.

The bank said it was experiencing moderate headwinds in net interest income in global wealth management after the Swiss central bank cut interest rates, but that client and transactional activity was seeing continued momentum.

Write to Adria Calatayud at adria.calatayud@wsj.com

(END) Dow Jones Newswires

August 14, 2024 05:29 ET (09:29 GMT)

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