UBS breaks industry record with $29bn profit after Credit Suisse takeover

UBS has reported the biggest ever quarterly profit for a bank, after recording a $29 billion (€26.6 billion) gain linked to its takeover of Credit Suisse.

The Swiss lender announced the figures on Thursday as it said it would press ahead with absorbing Credit Suisse’s domestic business despite local and political opposition to a deal expected to result in thousands of job cuts and branch closures.

UBS agreed to rescue its ailing rival five months ago and its record $29 billion pretax profit was almost entirely thanks to the accounting gain it recorded on the $3.4 billion takeover.

The previous largest quarterly bank profit was $14.3 billion, reported by JPMorgan at the start of 2021.

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UBS said that Credit Suisse’s domestic business would be run separately until it was legally combined with UBS next year. The two Swiss entities would be fully integrated by 2025, at which point it would end all Credit Suisse’s domestic sponsorship commitments, it added.

The two groups’ international businesses are already being combined and Credit Suisse reported an overall 9.3 billion Swiss francs ($10.6 billion) pretax loss for the second quarter as customers withdrew SFr39 billion.

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UBS’s decision to absorb Credit Suisse’s domestic business and eliminate branding for the bank that dates back 167 years has been one of the most contentious parts of the takeover, which is the first time two global systemically important financial institutions are to be combined.

A public poll, shortly after the takeover was agreed in March, showed three-quarters of Swiss citizens opposed UBS merging its domestic business with its former rival.

Switzerland is preparing for national elections in October and the impact of the merger of two of the country’s biggest companies is a central issue.

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“Our decision on Credit Suisse [Switzerland] . . . follows a thorough evaluation of all available options,” UBS chief executive Sergio Ermotti said on Thursday. “Our analysis clearly shows that full integration is the best outcome for UBS, our stakeholders and the Swiss economy.”

UBS also announced that it planned to have substantially completed its integration of the wider Credit Suisse group by 2026, by which time it intends to have cut $10 billion of costs.

Mr Ermotti on Thursday said UBS planned to make 3,000 redundancies in Switzerland in the coming years, though most of the job losses would be through staff retiring or leaving and not being replaced.

The $29 billion accounting gain – known as negative goodwill – reflects the difference between the value of Credit Suisse’s assets on its books and the lower price UBS paid for them. Analysts had expected an even higher gain – of $33 billion – but Credit Suisse incurred losses this year and UBS recorded writedowns to some Credit Suisse assets.

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Excluding the accounting boost, UBS recorded a $1.1 billion pretax profit for the quarter.

Its latest results also reported a 4 per cent year-on-year fall in wealth management profit, a 54 per cent rise in retail and corporate banking profit, a 91 per cent drop in asset management profit – mainly due to the sale of a stake in a fund manager last year – and a 66 per cent drop in investment banking profits.

The results were pushed back by five weeks to allow UBS to formulate its plan for Credit Suisse.

In recent weeks, UBS has been clearing up legacy legal and regulatory disputes.

This month, it agreed to pay $1.4 billion to resolve a US regulatory probe into the alleged mis-selling of residential mortgage bonds in the run-up to the 2008 financial crisis, wrapping up the last remaining case brought by the US government against big banks over the issue.

UBS also made clear it did not intend to use an SFr9 billion (€9.3 billion) backstop from the Swiss government designed to shield it from losses following the Credit Suisse acquisition.

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It has also terminated a SFr100 billion liquidity lifeline offered by the Swiss National Bank at the height of turmoil that swept the banking sector in the spring and culminated in the Credit Suisse takeover.

Since agreeing to rescue Credit Suisse in March, UBS shares have risen close to 40 per cent. The Euro Stoxx Banks Index that tracks European lenders is up 16 per cent over the same period.

UBS shares rose 6 per cent on Thursday morning, to their highest level since 2008. – Copyright The Financial Times Limited 2023