UBS has set out plans for deeper cost cuts as the mammoth integration of rival Credit Suisse helped drive the Swiss bank to a second straight quarterly loss.
Chief executive Sergio Ermotti, parachuted back into the top job to oversee the takeover, had previously described 2024 as a “pivotal year” for the integration, and on Tuesday said UBS would be aiming for $13 billion (€12 billion) of cost cuts by 2026, up from $10 billion.
The sharper cuts were among several targets that UBS announced, as the bank reported a fourth-quarter loss of $279 million, modestly better than the $285 million expected by analysts.
UBS said it planned to raise assets in its key wealth management business to above $5 trillion by 2028 and complete the legal merger of both holding companies by the end of June.
Its wealth management business – especially in the crowded but fast-growing US market – is at the cornerstone of its strategy to capitalise on buying Credit Suisse, a deal orchestrated by Swiss regulators almost a year ago.
“2023 was a defining year in UBS’s history with the acquisition of Credit Suisse,” said Ermotti in a statement. “As we move to the next phase of our journey, we will focus on restructuring and optimising the combined businesses.”
In a sign of management’s confidence that they will eventually make the deal pay off, UBS also said it would raise its dividend by 27 per cent to 70 cents a share in May and buy back up to $1 billion of shares in 2024. The capital return programme was paused when it acquired Credit Suisse.
UBS slipped 3 per cent on Tuesday, but have risen almost 50 per cent since the rescue of Credit Suisse. At the end of last year, activist investor Cevian Capital took a €1.2 billion stake in the group, betting the bank could double its valuation in the next three to five years.
“There is still a lot of work to do,” said Vontobel analyst Andreas Venditti. “The shares’ current valuation offers significant upside, should UBS be able to reach its long-term financial targets.”
The fourth-quarter loss comes on the heels of a $785 million loss in the third quarter, its first for six years, thanks to $2.2 billion of restructuring costs. In total, UBS reported $4.7 billion of integration and acquisition-related costs for 2023.
Among the expenses so far are $400 million of real-estate costs, including breaking leases on offices occupied by its defunct rival.
Overall, headcount was reduced by 3,139 to 112,842 in the final quarter, taking the number of jobs axed last year to more than 16,000. Tens of thousands more jobs are expected to go in the coming years as the bank focuses on hitting cost-reduction targets.
While the Credit Suisse deal has saddled the bank with integration costs, the results allayed fears that clients would pull their assets from UBS in the near term to avoid any disruption from the takeover.
The bank reported $77 billion of new assets and another $77 billion of new deposits across wealth-management and personal banking businesses last year.
Its investment bank slumped to a loss of $169 million in the period, which the lender said was mainly down to the costs of consolidating Credit Suisse’s business. UBS said it expected the division to return to profit in the first quarter.
For the fourth quarter, UBS reported revenues of $10.9 billion, just shy of analyst expectations of $11 billion, and down from $11.7 billion in the third quarter. The bank generated $40.8 billion of revenues last year, up from $34.6 billion in 2022.
The bank reported an annual profit of $30 billion, which was almost entirely because of an accounting gain as a result of taking over Credit Suisse. It added that, overall, it expected a better first quarter of 2024, with an improvement in revenues.
UBS also indicated it would raise billions of dollars in the coming years from issuing additional tier 1 bonds, the form of bank debt that was controversially wiped out during Credit Suisse’s rescue. – Copyright The Financial Times Limited 2024