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Swiss banking giant UBS On Tuesday, the company narrowly beat fourth-quarter profit expectations and said it would begin repurchasing shares worth up to $1 billion in the second half of the year.
The group posted a net loss attributable to shareholders of $279 million in the quarter, its second consecutive loss due to the costs of integrating fallen rival Credit Suisse. However, analysts polled by LSEG had expected a larger net loss of $372 million.
Along with the share buybacks, UBS plans to propose a dividend of $0.70 per share, a 27% increase from last year.
In the third quarter, UBS reported a larger-than-expected net loss attributable to shareholders of $785 million, including $2 billion in expenses related to the integration of fallen rival Credit Suisse.
Following this third quarter report, the market focused on the bank’s strong underlying operating profit before tax, which was well above expectations. For the fourth quarter, this figure was $592 million.
“I’m very pleased that we’ve actually seen good profitability on an underlying basis and also good momentum with customers. We recorded net new money inflows of $22 billion and also saw very good deposit inflows in both wealth management areas and in P&C (private and corporate banking) we have exposure to non-core and legacy areas reduced,” UBS CEO Sergio Ermotti told CNBC on Tuesday.
“We also continued to improve our cost savings goals by achieving an exit rate of $4 billion in cost savings in 2023. So all of this has contributed to good results and that gives us the confidence to now tackle the next phase of our restructuring. “Integration.”
UBS has so far reported a faster-than-expected return of client flows to Credit Suisse’s wealth management business since the acquisition, which closed in June 2023.
The embattled rival’s integration continues, with UBS starting a process to cut around 3,000 jobs at Credit Suisse as part of the broader restructuring.
UBS said Tuesday that it has completed the first phase of the strategic integration and that the full merger is expected to be completed by the end of the second quarter.
Here are some other highlights:
- Total group revenue was $10.86 billion, down from $11.7 billion in the third quarter.
- The common equity Tier 1 capital ratio (CET1), a measure of the bank’s liquidity, was 14.5%, compared to 14.4% in the previous quarter.
- Net new deposits at flagship Global Wealth Management were $77 billion, while net new deposits at GWM and its retail and corporate banking division also totaled $77 billion since the Credit Suisse acquisition was completed in 2023.
- In the fourth quarter, GWM’s net new assets were $21.8 billion.
Ermotti told CNBC’s Silvia Amaro on Tuesday that delays were the biggest risk to the Credit Suisse integration, given the tough targets UBS has set.
“2024 is a pivotal year in that sense because in the first half of the year we are merging our two parent companies, we are merging the US operations, we are merging the Swiss operations, and that will then allow us to start implementing that Synergies,” said Ermotti.
“IT migration is the second big potential problem, but we have a very concrete plan. If you think about it, we have 6,000 deliverables that we need to execute, so we plan very carefully and also in a way that doesn’t create concentration risk in execution.”
UBS shares got off to a cautious start in 2024 and closed Monday trading down 1.5% since the turn of the year.
The market will look past the “accounting noise” in the coming years
Given the various costs associated with the integration, the market will look beyond the headline UBS earnings and focus on more fundamental indicators over the next few years, according to Morningstar equity analyst Johann Scholtz.
“UBS has indicated that they are only looking at 2027 before we actually get to a situation where all the accounting noise flows out of the results, but I think there are other numbers that we can look at and give us “A good indication of the underlying health of the company,” Scholtz told CNBC’s “Capital Connection” on Tuesday.
He suggested that the key number to focus on was net new money growth in the wealth management division, particularly in the legacy Credit Suisse part of that business.
“The reason why net new money is really so important is because the assets under management obviously incorporate market movements. So that really gives you a good indication of whether the combined company will be able to retain customers and maybe even win some of the customers back.” “Credit Suisse lost money in its wealth management division due to concerns about the health of the credit Suisse business,” explained Scholtz.
“It is also important to note that the Credit Suisse arm of the asset management business is actually close to break-even and is making slight losses. So it’s really important for this space to manage some new assets to improve its fee income and return to profitability.”
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2024-02-06 07:27:29
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