(News Bulletin 247) – The Swiss bank posted a profit in the second quarter of 29 billion dollars, an all-time high. This is due to accounting elements related to the takeover of Credit Suisse. Its stock jumped on the Zurich Stock Exchange.

Observers who consider that UBS has carried out the heist of the century by buying Credit Suisse at a lower cost have something to grind.

The Swiss bank posted an impressive net profit of $29 billion in the second quarter. Which, according to Bloomberg, is a record for a bank in a second quarter.

This dizzying figure is due to accounting elements, namely a negative goodwill (goodwill) of 29 billion dollars linked to the acquisition of Credit Suisse, which had been rushed by the Swiss regulators to stem a systemic crisis due to the difficulties of the second Swiss bank. Credit Suisse faced a major crisis of market and client confidence in March, with deposit outflows.

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The leakage of deposits subsides

Put simply, this $29 billion negative goodwill reflects the difference between the price actually paid by UBS ($3.8 billion, according to Bloomberg) and the book value of Credit Suisse’s assets. It should be remembered that the takeover of the second Swiss bank by the first was made at a bargain price, with a 59% discount on the share price, a set of important guarantees, and the reduction to zero of certain obligations (AT1 ), which turn into actions in certain cases. This last point had also been strongly criticized by the financial community, causing legal complaints from investors.

UBS’s record net profit is also a reminder that net profit is not the most reliable indicator of a company’s performance because it is polluted by exceptional items.

Beyond this line of account, UBS saw its net banking income settle at 9.54 billion dollars in the second quarter, against 8.74 billion a year earlier, a figure which includes the consolidation of the financial statements of Credit Switzerland from 1 June. These total revenues are higher than the analyst consensus, which was $9.37 billion, according to Royal Bank of Canada.

An important point: the erosion of deposits, which was observed at Credit Suisse, seems to be stabilizing. Jefferies notes that, in the wealth management branch of Credit Suisse, assets under management certainly shrunk by $30 billion in the second quarter. But they started to rise again in June (+1 billion) and so far in the third quarter (+1 billion to date). Deposits have also started to rise again in the Swiss retail bank of Credit Suisse, with a positive flow of 4 billion Swiss francs in the second quarter and 4 billion again so far in the third quarter.

In addition “The contagion on the flows of UBS has obviously been limited”, underlines Jefferies. UBS’s wealth management arm recorded a $16 billion increase in assets under management in the second quarter.

Towards a resumption of share buybacks?

UBS has also confirmed that it will absorb all of Credit Suisse and has indicated that it is aiming for annual gross cost savings of $10 billion by the end of 2026. This will result in the elimination of 3,000 positions in Switzerland. The bank previously expected savings of $8 billion by the end of 2027.

In terms of the outlook, UBS expects underlying pre-tax profit to be close to break-even in the third quarter and positive for the whole of the second half of 2023.

In addition, UBS will provide an update on its outlook and the use of its capital when it publishes its annual results. According to Royal Bank of Canada, this could mean that UBS share buybacks, which had been suspended with the acquisition of Credit Suisse, could resume faster than expected.

On the Zurich Stock Exchange, the UBS share rose strongly. The title goes up 5.6% around 11:50 a.m. to 23.41 Swiss francs.

“It is clear that the group remains a construction site in the short term, but we believe that this series of results and announcements should give confidence in the bullish scenario for the action in the medium term”, appreciates Deutsche Bank.