UBS shares rise 3% as market focuses on strong underlying profit

UBS shares rose on Tuesday morning, after the Swiss banking giant resoundingly exceeded core earnings expectations.

The bank reported underlying pre-tax operating profit of $844 million, well above consensus expectations. UBS shares were up 3.2% by mid-afternoon in Europe.

Including $2 billion in expenses related to the integration of rival bank Credit Suisse, UBS posted a net loss attributable to shareholders of $785 million in the third quarter, ahead of expectations. Analysts consulted by Reuters had forecast a quarterly net loss of $444 million in a survey compiled by the company.

Here are a few other highlights:

• Total group revenue was $11.7 billion, up 23% from $9.54 billion in the second quarter.
• The CET1 capital ratio, a measure of the bank’s liquidity, was 14.4 percent, unchanged from the previous quarter.
• Credit Suisse Wealth Management generated positive net new money inflows for the first time since Q1 2022, contributing to inflows of $22 billion for UBS Global Wealth Management.

“You have seen that, sequentially, we have improved the underlying performance of Wealth Management, Asset Management and our retail and corporate banking in Switzerland. Both were up quarter-on-quarter,” UBS CEO Sergio Ermotti told CNBC on Tuesday.

“IB [investment banking] faced tougher market conditions, especially considering our business model and the fact that we are integrating Credit Suisse resources. But the quarter was very solid, we made good progress with our integration plans and, at the same time, we recorded a very strong influx of customers.”

A ‘good set of results’

Analysts at Citi pointed out on Tuesday that underlying pre-tax profit of $844 million was “well ahead of the company’s previous (break-even) forecasts, three times consensus expectations and within 6% of our above-consensus forecast”.

“As we expected, the result is due to better operating expenses, 7% below consensus, with revenues also 1% higher. This is slightly offset by higher provisions”, they noted, adding that the acceleration in Wealth Management’s net new money inflows in September was also “encouraging”.
Citi concluded that Tuesday’s report was “overall a good set of results” and reiterated its “Buy/High Risk” rating.

UBS completed the takeover of its troubled domestic rival in June and announced in August that it had terminated a loss-protection agreement worth 9 billion Swiss francs and public liquidity support worth 100 billion Swiss francs, which had been put in place when the emergency rescue package was approved in March.

In August, the bank’s shares reached their highest level since the end of 2008, after second-quarter results showed a net profit of $28.88 billion due to negative goodwill related to the acquisition of Credit Suisse.

Negative goodwill represents the fair value of assets acquired in a merger, in addition to the purchase price. UBS paid a discount of 3 billion Swiss francs ($3.33 billion) to acquire Credit Suisse in March, as part of a deal negotiated by the Swiss authorities to avoid the collapse of the notorious scandal-tainted lender.

Since then, the share price has fallen slightly, but remains up over 27% for the year.

UBS is also in the process of fully integrating Credit Suisse’s Swiss banking unit – a major profit center – and is expected to cut a large part of the former bank’s workforce.

UBS reported net new deposits of $33 billion in its Global Wealth Management and Personal and Corporate Banking (P&C) divisions, including $22 billion from Credit Suisse customers and positive deposit flows for P&C in September, the month following the announcement of UBS’s decision to integrate the national bank.

The bank also announced earlier this year that it was targeting gross savings of at least $10 billion by 2026, by which time it hopes to have completed the integration of all Credit Suisse Group activities.