Market Analysis

UBS reported a net profit of $1.14 billion for the April-June period on Wednesday, significantly surpassing analysts' expectations. This marks a new chapter in the bank's integration of Credit Suisse, a former rival.

The net profit attributable to shareholders exceeded the $528 million forecasted by analysts in a company-conducted poll. These results are the first since UBS completed its formal legal merger with Credit Suisse in May.

UBS acquired Credit Suisse last year in a rescue effort orchestrated by Swiss authorities after the latter faced multiple financial challenges and scandals.

UBS CEO Sergio Ermotti stated that the first-half results demonstrated the "significant progress" made since the Credit Suisse acquisition. "We are well-positioned to meet our financial targets and return to the profitability levels we achieved before being called upon to stabilize Credit Suisse," he said. He added that the bank is now moving into the next phase of integration, which is essential for realizing substantial cost, capital, funding, and tax benefits.

UBS also announced it had achieved $0.9 billion in additional gross cost savings, hitting approximately 45% of its cumulative annualized gross cost-saving goals. The bank has reduced non-core and legacy risk-weighted assets by 42% since the second quarter of the previous year, including an $8 billion decline quarter-on-quarter.

The bank noted that the macroeconomic outlook remains uncertain due to ongoing conflicts, geopolitical tensions, and the upcoming U.S. elections. UBS expects these uncertainties to persist, likely resulting in higher market volatility than in the first half of the year.

Despite these challenges, UBS observed positive investor sentiment and continued momentum in client and transactional activities. The bank also reported moderate headwinds in net interest income due to ongoing mix shifts in Global Wealth Management and the effects of the Swiss National Bank's second rate cut, which are not yet reflected in UBS's deposit pricing in Personal & Corporate Banking.

Looking ahead, UBS expects to incur approximately $1.1 billion in integration-related expenses in the third quarter, with a modest sequential decline in the pace of gross cost savings. However, these expenses should be partly offset by around $0.6 billion in accretion of purchase accounting effects.

Last year, UBS reported a nearly $29 billion profit in the second quarter due to a significant one-off gain from acquiring Credit Suisse at a price far below its value. Following the merger, UBS posted two consecutive quarters of losses due to the costs associated with absorbing its rival.

Investors initially reacted positively to the takeover, with UBS shares rising by more than two-thirds since the acquisition of Credit Suisse in March 2023. However, the bank's shares have recently lost ground amid global market turmoil.

Analysts are closely monitoring UBS's integration of Credit Suisse, and Ermotti cautioned in May that any delays in the technological integration of the two banks could undermine planned cost savings.

Markets are also keeping an eye on how Swiss authorities will implement tighter banking regulations to prevent another crisis like the Credit Suisse collapse. In April, the Swiss government introduced a series of "too big to fail" proposals, indicating that UBS might need to hold additional capital as a safeguard against future issues. While the Swiss finance minister suggested this amount could be between $15 billion and $25 billion, the exact figure remains uncertain, and UBS has expressed "serious" concerns about the potential increase in capital requirements.

Paraphrasing text from "Reuters" all rights reserved by the original author.