Switzerland-based bank says integration of its former rival is a hard task set to take four years
25 April 2023 - 08:27
byNoele Illien and Stefania Spezzati
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UBS flagship office in New York, the US. Picture: ANGUS MORDANT/BLOOMBERG
Zurich — UBS said on Tuesday it has set aside more money to draw a line under its involvement in toxic US mortgages, halving its first-quarter profit as the bank girds itself for the “hard” task of swallowing fallen rival Credit Suisse.
Sergio Ermotti, brought back as CEO to steer the takeover, said UBS aims to close the deal with fellow Zurich-based bank Credit Suisse by May but warned that it could take four years for full integration.
“There is much to do and there will be difficult decisions to be made in the coming months,” he said during a call with analysts.
Meanwhile, the Herculean task of absorbing Credit Suisse includes dealing with a backlash against the deal at home, where thousands of jobs cuts are feared.
Shares in UBS were down 1.46% in morning trade after news of the attempt by Switzerland’s biggest bank to make a clean sweep of problems dating back 15 years to the global financial crisis.
UBS said concerns about the banking sector globally persist and customer activity “could remain subdued in the second quarter”, but added that higher interest rates will bolster its lending income.
It reported a 52% slide in quarterly income, having made an additional $665m in provisions to cover litigation costs related to US residential mortgage-backed securities that played a central role in the global financial crisis.
Net profit of $1bn was well below the $1.7bn consensus average from a UBS-conducted poll. But the world’s largest wealth manager also reported strong inflows, totalling about $42bn.
Its flagship wealth management division received $28bn in net new money, a quarter of which came in the last 10 days of March after the Credit Suisse rescue takeover deal.
UBS reported a slight drop in year-on-year profit before tax and revenue for the division, saying there has been an increase in deposit revenues stemming from higher interest rates but at the same time some clients have shifted to lower-margin products.
Toxic debt
UBS was an issuer and underwriter of US residential mortgage-backed securities in the five years to 2007, according to its annual report in 2022. In November 2018, US authorities started legal action against UBS, seeking penalties for its involvement in scores of such deals. UBS subsequently lost a court case on the matter.
“We are in advanced discussions with the US department of justice, and I am pleased that we are making progress towards resolving the legacy matter,” Ermotti said.
Investment bank revenue fell 19% year on year, in line with forecasts, and profit before tax for the division slumped 49%.
UBS said it expects the takeover of Credit Suisse to close in the second quarter, possibly in May. More clarity around which businesses UBS intends to keep will emerge in the next months, Ermotti said.
Credit Suisse has a presence in more than 50 countries and UBS said certain markets where its former rival is active such as Latin America “bring value”.
UBS is still waiting for formal approval from European antitrust regulators after getting an initial green light earlier in April. The European Central Bank is also expected to sign off on the deal after its US, British and Swiss counterparts gave their approval in April, Ermotti said.
Scandal-scarred Credit Suisse was brought to its knees after clients left in droves amid global banking sector turmoil. Under a deal hastily engineered by Swiss authorities, UBS agreed to take it over for Sf3bn and to assume up to Sf5bn in losses.
UBS said it has not decided whether it will keep the Credit Suisse domestic business. Earlier this month Zurich-based finance blog Inside Paradeplatz said UBS was exploring a possible initial public offering .
“I personally, and we, believe there is no real issue in terms of oversight presence in Switzerland,” Ermotti said.
“What we need to do is also to make those decisions based on facts and not emotions. Right now the discussion is totally based on emotions, in many cases totally uniformed,” he added.
Credit Suisse said on Monday that Sf61bn in assets have left the bank in the first quarter and that outflows continue, highlighting the challenge for UBS.
“We need time,” Ermotti said in an online video, adding: “Things are going to be hard”.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
UBS profit slides 52% amid Credit Suisse takeover woes
Switzerland-based bank says integration of its former rival is a hard task set to take four years
Zurich — UBS said on Tuesday it has set aside more money to draw a line under its involvement in toxic US mortgages, halving its first-quarter profit as the bank girds itself for the “hard” task of swallowing fallen rival Credit Suisse.
Sergio Ermotti, brought back as CEO to steer the takeover, said UBS aims to close the deal with fellow Zurich-based bank Credit Suisse by May but warned that it could take four years for full integration.
“There is much to do and there will be difficult decisions to be made in the coming months,” he said during a call with analysts.
Meanwhile, the Herculean task of absorbing Credit Suisse includes dealing with a backlash against the deal at home, where thousands of jobs cuts are feared.
Shares in UBS were down 1.46% in morning trade after news of the attempt by Switzerland’s biggest bank to make a clean sweep of problems dating back 15 years to the global financial crisis.
UBS said concerns about the banking sector globally persist and customer activity “could remain subdued in the second quarter”, but added that higher interest rates will bolster its lending income.
It reported a 52% slide in quarterly income, having made an additional $665m in provisions to cover litigation costs related to US residential mortgage-backed securities that played a central role in the global financial crisis.
Net profit of $1bn was well below the $1.7bn consensus average from a UBS-conducted poll. But the world’s largest wealth manager also reported strong inflows, totalling about $42bn.
Its flagship wealth management division received $28bn in net new money, a quarter of which came in the last 10 days of March after the Credit Suisse rescue takeover deal.
UBS reported a slight drop in year-on-year profit before tax and revenue for the division, saying there has been an increase in deposit revenues stemming from higher interest rates but at the same time some clients have shifted to lower-margin products.
Toxic debt
UBS was an issuer and underwriter of US residential mortgage-backed securities in the five years to 2007, according to its annual report in 2022. In November 2018, US authorities started legal action against UBS, seeking penalties for its involvement in scores of such deals. UBS subsequently lost a court case on the matter.
“We are in advanced discussions with the US department of justice, and I am pleased that we are making progress towards resolving the legacy matter,” Ermotti said.
Investment bank revenue fell 19% year on year, in line with forecasts, and profit before tax for the division slumped 49%.
UBS said it expects the takeover of Credit Suisse to close in the second quarter, possibly in May. More clarity around which businesses UBS intends to keep will emerge in the next months, Ermotti said.
Credit Suisse has a presence in more than 50 countries and UBS said certain markets where its former rival is active such as Latin America “bring value”.
UBS is still waiting for formal approval from European antitrust regulators after getting an initial green light earlier in April. The European Central Bank is also expected to sign off on the deal after its US, British and Swiss counterparts gave their approval in April, Ermotti said.
Scandal-scarred Credit Suisse was brought to its knees after clients left in droves amid global banking sector turmoil. Under a deal hastily engineered by Swiss authorities, UBS agreed to take it over for Sf3bn and to assume up to Sf5bn in losses.
UBS said it has not decided whether it will keep the Credit Suisse domestic business. Earlier this month Zurich-based finance blog Inside Paradeplatz said UBS was exploring a possible initial public offering .
“I personally, and we, believe there is no real issue in terms of oversight presence in Switzerland,” Ermotti said.
“What we need to do is also to make those decisions based on facts and not emotions. Right now the discussion is totally based on emotions, in many cases totally uniformed,” he added.
Credit Suisse said on Monday that Sf61bn in assets have left the bank in the first quarter and that outflows continue, highlighting the challenge for UBS.
“We need time,” Ermotti said in an online video, adding: “Things are going to be hard”.
Reuters
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