UBS Reported a $29 Billion Profit After Buying Credit Suisse

UBS announced significant profit growth in the second quarter attributed to its acquisition of Credit Suisse, a strategic decision by the Swiss banking behemoth to integrate the local banking operation it had initially contemplated spinning off.

‍

The net profit of UBS witnessed a remarkable surge to $28.88 billion, a substantial increase from the previous quarter's $2.11 billion. Notably, this surge in profit is entirely attributed to the $28.93 billion in negative goodwill resulting from the acquisition of Credit Suisse, a transaction facilitated with the support of the Swiss government.

‍

However, the underlying pretax profit of $1.14 billion fell short of analyst projections by approximately $400 million.

‍

Sergio Ermotti, CEO of UBS, reiterated on Thursday that Credit Suisse would not have been able to sustain itself independently due to its "severe flaws."

‍

In response to these developments, UBS shares in Switzerland experienced a 6% increase, contributing to a 36% year-to-date rise in the stock's value.

‍

The reported revenue rose to $9.54 billion from $8.03 billion, with $497 million stemming from the control of Credit Suisse over the course of a month. However, associated costs also saw an increase, leading to a rise in personnel count from 45,286 at the end of the first quarter to 119,100. The cost-to-income ratio surged to 88.9% from 70.6% during the year-ago quarter.

‍

While Credit Suisse's wealth management division experienced $30 billion in outflows, UBS's global wealth management recorded $16 billion in inflows. Collectively, both banks have contributed $8 billion in inflows during the current quarter.

‍

Johann Scholtz, an equity analyst at Morningstar, noted, "Wealth management revenue held up reasonably well, and we view the net client inflows recorded in the quarter as confirmation that UBS has managed to stabilize the ship and a major positive." Analysts further highlighted UBS's intention to disclose information regarding stock buybacks in its third-quarter report.

‍

UBS disclosed its decision to retain the Credit Suisse banking operation in Switzerland, a move it had initially contemplated spinning off. The rationale behind this decision lies in the acknowledgment that UBS would have faced challenges as an independent entity, characterized by low profitability and a significant funding gap. Instead, the bank plans to merge the Credit Suisse banking operation with its own in Switzerland in the upcoming year.

‍

Ermotti announced that the merger of the two banks will lead to 1,000 job cuts, with an additional 2,000 job cuts anticipated across other areas of Credit Suisse's businesses.

‍

Furthermore, UBS unveiled its aim to achieve a reduction in costs amounting to $10 billion by the conclusion of 2026.

‍