UBS posts $29bn profit, to retain credit Suisse Domestic Bank

Swiss investment bank UBS said Thursday that it would retain Credit Suisse's domestic bank, as widely anticipated, as it reported a record second-quarter profit in its first set of results since acquiring its former rival.

"Our analysis clearly shows that full integration is the best outcome for UBS, our stakeholders and the Swiss economy," UBS said.

UBS reported a second-quarter net profit of $28.88 billion, one of the highest quarterly profits in banking history, since it takes into account nearly $29 billion in negative goodwill from the Credit Suisse acquisition, which completed in June.

Operating profit was $29.2 billion, while revenues were $9.54 billion. According to a company-provided consensus, operating profit was seen at $33.73 billion, while net profit was expected around $33.45 billion.

By integrating Credit Suisse's Swiss bank, UBS retains the crown jewel and consistent moneymaker of the ailing lender's franchise, although the deal risks thousands of job losses. In Credit Suisse's second-quarter earnings report, which was released at the same time as UBS's, the domestic bank posted adjusted income before taxes of CHF224 million.

UBS ticked up its estimates for cost savings as part of the deal to $10 billion, after having previously expected $8 billion, alongside a cost-to-income ratio of less than 70% and a return on common equity tier 1 capital of around 15% by the end of 2026. In the second quarter, the C/I ratio on an underlying basis was 88.9% and RoCET1 was 4.5%.

However, the bank is only expected to break even in the third quarter on an underlying profit-before-tax basis, a decline from $1.1 billion in the second quarter.

Nevertheless, UBS said it is currently seeing an improvement in client sentiment and momentum in transactions among wealth management clients.

"We expect positive net new asset flows in our wealth and asset management franchises, and higher asset valuations are also expected to have a positive impact on our recurring net fee income year on year," the bank said.

UBS added that it had defined a non-core perimeter for its operations going forward, which includes elements of the Credit Suisse franchise not aligned with its strategy--including the majority of assets and liabilities of its investment bank, wealth management and asset management-divisions.

UBS and Credit Suisse will continue to operate separately until 2024, with the latter's brand and operations in place until 2025, UBS said.