UBS Group AG reported better-than-expected client inflows and meeting cost-cutting targets, even as the continued takeover of Credit Suisse hurt the Swiss lender’s performance.
Challenges Amid the Credit Suisse Integration
The asset management division had $22 billion in net new funding in the third quarter, giving it a $14 billion valuation. UBS said it had stabilized Credit Suisse’s wealth management business with positive client flows for the first time in a year and a half.
The Zurich-based bank posted a net loss of $785 million in the three months to September, its first quarterly loss in six years. Total integration-related costs were $2 billion, with another $1 billion expected in the fourth quarter.
Strategic Restructuring and Market Outlook
UBS CEO Sergio Ermotti is preparing the combined bank for a strategic restructuring to be announced in February as he explores the biggest financial sector merger in decades. The bank’s shares have risen nearly 30 percent this year as investors cheered Ermotti’s plan to consolidate Credit Suisse’s profitable businesses and liquidate the rest.
UBS shares were up 3.15% at 9:09 a.m. in Zurich. Sales in the asset management division were lower than expected. UBS said uncertainty about the economic outlook, including rising central bank interest rates and geopolitical tensions, could affect asset management clients’ willingness to trade in the fourth quarter. Investment bank
UBS reported a 36% year-over-year increase in investment banking revenue, driven by M&A fees and leveraged capital markets. In trading, UBS shares were down 3 percent from a year ago, reflecting difficult markets that contributed to the Wall Street bank’s mixed results. UBS’s revenue from its smaller fixed income, interest rates and foreign exchange trading businesses fell 37 percent year-on-year, a far steeper decline than any other U.S. trading company.
UBS said it will close about two-thirds of its investment bank Credit Suisse, absorbing former rivals, including almost all of its trading business, as part of a plan to exit businesses that do not fit its existing strategy. UBS accelerated the sale of assets it inherited from Credit Suisse and said it had no intention of continuing, reducing its risk-weighted assets by $6.4 billion in the quarter.
The Swiss bank said it would provide an update to its share buyback program in February to coincide with its annual results. On the cost side, UBS said it had met its goal of cutting costs by about $3 billion this year. But labor costs rose, including about $500 million paid to key Credit Suisse employees. UBS is exploring reducing its consolidated workforce as a way to cut costs. In the third quarter, the number of executive managers fell by more than 4,000, about 13,000 fewer than the total number when the two banks were merged late last year. “UBS has made clear progress since the deal closed, but it still faces big challenges,” said Andreas Venditti, an analyst at Vontobel Holding AG in Zurich.
Bloomberg Intelligence says:
UBS’s underlying momentum and momentum in the acquired Credit Suisse business is critical to the success of this transaction. That will bring Credit Suisse’s new net worth to $3 billion, up from $2 billion in the third quarter last month. This follows outflows of $1 billion and asset inflows of $17 billion through August 28 ($7 billion last month, after $10 billion in the first two months). Composite asset flows, Swiss deposits and deposits improved in the third quarter. Accelerated reduction of non-core staff is positive. Integration costs are expected to be $1 billion in the fourth quarter, after $2 billion in the third quarter.