Swiss authorities negotiated the controversial emergency bailout of Credit Suisse by UBS for 3 billion Swiss francs ($3.37 billion) over a weekend in March.
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UBS Shares rebounded to 15-year highs on what analysts called a ‘historic’ earnings report, although Deutsche Bank said the Swiss banking giant could remain a ‘construction site’ for some time .
The group posted second-quarter net profit of $28.88 billion on Thursday thanks to negative goodwill of $28.93 billion from the acquisition of struggling rival Credit Suisse, brokered by the Swiss authorities in March and finalized on June 12.
UBS also announced that it will fully integrate Credit Suisse’s Swiss banking unit, a key profit center, in 2024. part of a massive restructuring of the rescued bank. .
UBS shares were up 5.6% on Thursday mid-afternoon in Zurich, hitting levels not seen since late 2008.
In particular, UBS pointed out that the massive outflows of net assets and deposits recorded by Credit Suisse over the past year have finally started to reverse and turned positive in June. Meanwhile, UBS’s CET1 ratio, a measure of bank solvency, climbed to 14.4% from 14.2% for the same period last year, despite the halt of one of the biggest mergers. in the history of the banking sector.
“UBS’s underlying businesses appear unaffected by the deal. Non-core businesses are significant but made solid progress and the CET1 ratio was strong/ahead of expectations in 2Q23,” it said Thursday. Deutsche Bank analysts Benjamin Goy and Sharath Kumar in a research note. .
“Clearly the group remains a near-term builder, but we believe this set of results and announcements should provide confidence in the medium-term bullish scenario, buys.”
That optimism was echoed by Bruno Verstraete, a partner at Zurich-based Lakefield Partners, who told CNBC Thursday’s result was a “historic single number.”
“The good news is clearly that stabilization has arrived and the market seems to be reducing the risks associated with what existed and what was potentially something that still had corpses hidden in the closet,” he said in referring to the turbulent history of Credit Suisse. legacy compliance and monitoring failures.
“That doesn’t seem to be the case right now, it seems to be under control, and I think investors are reacting really positively to that.”
Earlier this month, UBS announced that it had terminated a 9 billion Swiss franc ($10.24 billion) loss protection agreement and a 100 billion franc public safety net. put in place by the Swiss government when it agreed to buy Credit Suisse in March. .
Verstraete suggested that the cessation of all financial dependence on the Swiss government and central bank allowed UBS to make the decision to absorb the domestic banking division of Credit Suisse without being subject to any political pressure. The prospect of further massive layoffs could be unpopular in some parts of the political and public sphere in Switzerland.
“It’s difficult to combine such a stellar result and announce layoffs at the same time. I think there will be different ways of layoffs in order to achieve this integration and the cost reduction opportunity that exists. C is clearly positive for investors,” said Verstraete.
However, he believes that it is in the interest of the Swiss population to have a “solid bank”.
“A third of Switzerland does business with the group. They want to have a stable group, they don’t want a juggernaut created that is too big to save. I think this risk reduction, this shift from an approach to risk culture to another is something that, in time, will clearly benefit the general public,” added Verstraete.
UBS on Thursday announced plans to further cut non-core units from Credit Suisse’s troubled investment banking, wealth management and asset management divisions, which it said “are not aligned with our strategy. and our policies.
Gildas Surry, senior analyst at Paris-based Axiom Alternative Investments, told CNBC on Thursday that the market will be closely watching UBS’s efforts to liquidate these non-core divisions and will seek additional guidance on the future of the CET1 ratio. form the bank.
“What’s very positive is the actual inflows, so the deposit reversal is happening, that’s also a really good sign for the franchise,” Surry said.
“The integration of the Swiss operations of Credit Suisse is fully compliant, so nothing new there, but what is going to be very interesting is indeed the timing of share buybacks, and for that we need repayment of the Credit Suisse National Bank funding line as well as the demonstration that UBS has access to the AT1 markets following the Credit Suisse AT1 writedowns in March.”
The Swiss government, central bank and UBS came under fire in March after the emergency bailout included the controversial writedown of 16 billion Swiss francs of Credit Suisse AT1 bonds.