UBS smashes second quarter profit expectations as Credit Suisse consolidation boosts revenue

Swiss banking giant UBS on Wednesday smashed net profit expectations for the second quarter, amid cost-cutting steps and swelling revenue at the lender’s global wealth management and investment bank units.

Net profit attributable to shareholders came in at $1.136 billion for the period, versus a company-compiled consensus forecast of $528 million.

Profit was nonetheless lower than the $1.755 reported in the first quarter, as expected by analysts.

UBS shares were 2.35% higher at 9:10 a.m. London time.

Group revenue also beat forecasts in the second quarter, coming in at $11.904 billion versus an LSEG-compiled poll of $11.522 billion.

UBS said strong capital markets activity had partially offset a drag from net interest income, which it had previously flagged would be weaker due to lower lending and deposit volumes and lower Swiss interest rates.

In the bank’s global wealth management unit, revenue increased by 15% to $6.053 billion, which UBS said was largely due to the consolidation of Credit Suisse. Revenue in the investment bank unit leapt 38% to $2.803 billion.

“Across the board we showed pretty good resilience, in investment banking, in wealth management, but also I think that we are making good progress in de-risking in our core and taking down cost there,” UBS CEO Sergio Ermotti told CNBC’s Silvia Amaro in a Wednesday interview.

On the profit beat, Ermotti said: “It’s a combination of good momentum on the top-line, but also good progress on cost reductions.”

He added that the bank was seeing good momentum from client activity and transaction volumes in wealth management, though some headwinds on its margins from lower net interest income.

It has now been over a year since UBS formally took over Credit Suisse, triggering a huge integration process and creating a wealth management juggernaut. UBS said at the start of July the merger process had completed and that Credit Suisse — the Swiss bank which spectacularly collapsed in March 2023 after years of financial scandals — no longer existed as a separate entity.

Shedding risk-weighted assets — a major part of Credit Suisse’s business — has been a key part of that process.

UBS said it now expects to end 2024 with cumulative gross savings from the Credit Suisse deal of $7 billion, out of a target of $13 billion by 2026 compared with a 2022 baseline. It had previously aimed to deliver $6.5 billion in savings by the end of the year.

The bank had swung back to profit in the first quarter 2024 after two quarterly losses related to the cost of the integration.

“What’s next is a few years of work. We are still far away from the profitability UBS had before being asked to step in and rescue Credit Suisse,” Ermotti told CNBC, adding that the bank’s task now includes a focus on the U.S. and Asia-Pacific region.

In a note covering Wednesday’s results, analysts at RBC Capital Markets said: “UBS is delivering faster on the factors it can control – cost savings and [non-conforming loan] run down – which should provide some buffer against regulatory headwinds and a potentially more challenging operating environment.”

UBS shares rocketed 51.7% higher in 2023 as investors eyed the advantages from the acquisition of Credit Suisse, for which it paid a much lower price than the bank’s value in a deal facilitated by Swiss regulators.

Shares have since dipped 3.75% this year, in part rattled by new banking regulations proposed by authorities in Switzerland in an April report that would see UBS and three other “systemically relevant” banks face tougher capital requirements in order to protect the wider economy.

UBS has strongly criticized the proposals as unnecessary, arguing that the bank is not “too big to fail” — as alleged in the report — and would curb Switzerland’s global competitiveness.

Ermotti told CNBC on Wednesday UBS was “part of the solution” to banking instability in its rescue of Credit Suisse, rather than exacerbating the problem.

On resistance to banking consolidation in Europe, Ermotti said Wednesday that “the necessity for Europe to have larger financial players to have its own independence in financial matters is a given in my point of view.”

He added, “One has to probably recognize that post-Financial Crisis, Europe went too far in fragmenting or not allowing consolidation in the system which is now penalizing Europe and its financial system.”