UBS at 15-years record high 📈 Shares rally 6% after Q2 results

Shares of Switzerland's largest bank, UBS (UBSG.CH), are gaining 6% today following its Q2 report, after which the market becomes convinced that the acquisition of bankrupt Credit Suisse was probably a very good business move on the part of the institution and, most importantly, did not ultimately worsen its risk profile. Of course, in the face of the finalized acquisition, the bank delivered record results and is emerging as the global leader among all European banks. Profit beat expectations, and UBS intends to cut costs by further reducing up to 3,000 jobs in the next few years, after nearly 8,000 layoffs in the first half of 2023.

• Net profit: $28.88 billion vs. $12.8 billion forecast (Refinitiv)
• CET 1 capital ratio: 14.4% vs. 14.2% in Q2 2022.
• CET1 leverage ratio: 4.8% vs. 4.4% a year earlier.
• Estimates $10 billion in savings by the end of 2026 vs $8 billion by 2027 previously

Business success

• UBS Bank indicated that the result primarily reflects the more than $28 billion value associated with the Credit Suisse acquisition. Profit before taxes (excluding negative goodwill, integration expenses and acquisition costs) was $1.1 billion. Negative goodwill reflects the fair value of the assets acquired in the merger (over the acquisition price).
• Credit Suisse paid $3.4 billion (CHF 3 billion) to acquire Credit Suisse, and the market now sees that it has seen a significant increase in scale from the acquisition. 
• The risk-weighted assets acquired by UBS totaled $240 billion, and the institution is now focusing on changing the business model of the acquired units, stressing that the previous one could not be profitable.
• UBS stressed improved sentiment among wealthy clients and expects stronger financial markets to support increases in the fees it charges. 

Will Credit Suisse stay at UBS?

• Return on equity (excluding negative Credit Suisse, integration expenses and acquisition costs) was 4.3%. UBS CEO Sergio Ermotti shared an upbeat comment with the market in this regard, indicating that pulling out of the problems of the Credit Suisse acquisition is very likely.
• Credit Suisse's investment banking division will be fully absorbed from UBS very soon, and the complete merger of the legal entities is expected to be completed in 2024.
• It is also possible that UBS will eventually want to spin off Credit Suisse and conduct an IPO because the bank's core business was generating profits in 2022, and could potentially 'stand on its own' as a bank after restructuring at UBS.

For the moment, however, the base scenario is a full merger, which according to the CEO will strengthen the bank and the Swiss economy. This comment only reinforced the market's belief that the merger with Credit Suisse was a positive factor although it was not obvious in the spring.

Source: xStation5