UBS set for biggest banking profit once Credit Suisse deal closes

UBS will record its biggest banking profit ever next quarter, after it has completed the takeover Credit Suisse. This is due to the low price it negotiated in order to save its struggling rival. UBS could make up to 57 billion dollars in profit on this acquisition.

UBS has agreed to pay $3.25bn to acquire Credit Suisse. The book value is $60bn. UBS has taken pains to highlight the implementation risk associated with the closing of the deal.

UBS’s wealth division attracted new money of $28bn in the first quarter of this year. The Swiss bank was able to benefit from the growing crisis at Credit Suisse, which led to the takeover.

UBS announced that $7bn flowed to its wealth arm following its agreement last month to save its rival as part of a deal negotiated by Swiss authorities.

UBS’s asset-management arm absorbed $14bn, and its Swiss business saw net new fee generating assets grow by $8bn. UBS’s snapshot comes just a day after Credit Suisse announced $69bn in outflows for the third quarter.

“Our strong inflows and solid performance this quarter demonstrate that UBS continues to be a stable source for our clients, even during times of uncertainty,” said UBS CEO Sergio Ermotti. Ermotti was back last month as the leader of the integration of its competitor.

Analysts are concerned about the time and costs required to integrate Credit Suisse.

The lender stated on Tuesday that it expects to complete the purchase next month and will provide more information about the integration as well as its plans to wind up much of the rival’s Investment Bank.

“With this deal, we hope to strengthen our position as the leading global wealth manager that has strategic scale and complementary abilities in the most attractive markets for growth,” said Ermotti.

UBS confirmed that it spent $70mn in advisory fees on the deal. Ermotti confirmed that the Swiss authorities, US Federal Reserve, and UK Prudential Regulation Authority had cleared the acquisition.

He said that antitrust regulators will likely give the transaction the go-ahead in the next few weeks. UBS will also have to submit a registration statement to the US Securities and Exchange Commission in order for the takeover to be completed by May.

Ermotti stated that he would be deciding in the next two week the composition of his executive team for the integration. This could include members from the Credit Suisse Management Board.

UBS’s $1bn net profit in the first quarter was dominated by its acquisition of Credit Suisse. This is a 52 percent drop from the same time last year and well below analyst expectations. UBS’s results were impacted by the $665mn increase in its provisions for litigation related mortgage-backed securities.

Ermotti stated that the bank is in advanced talks with the US Department of Justice regarding the issue, which dates back to 15 years.

UBS shares dropped by as much as 5% in the early morning trading of Tuesday but recovered to trade at a loss of just 1% in the early afternoon.

Thomas Hallett, an analyst at Keefe, Bruyette & Woods, described the results as ‘lacklustre’, adding that the “overall bar was low in earnings and yet the results still managed disappoint.”

UBS stated that geopolitical tensions in the US and China, as well as the Russia-Ukraine conflict, caused uncertainty regarding asset valuations and economic outlooks, leading many clients to invest in money market funds in order to diversify their cash.

The bank bought back $1.3bn in shares during the quarter. However, the buyback program was temporarily suspended following the announcement of Credit Suisse’s deal.

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