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Additionally, UBS has announced its decision to fully integrate Credit Suisse’s domestic banking unit into its operations.
UBS Group AG (SWX: UBSG), Switzerland’s preeminent banking institution, has reported record-breaking Q2 2023 profits that not only exceeded analysts’ estimates but also highlighted the bank’s strategic prowess in its recent acquisition of Credit Suisse Group AG (SWX: CSGN).
UBS Records Impressive Q2 2023 Profit
Analysts had initially projected a net profit of $12.8 billion for the Q2 of the fiscal year, a figure that UBS has decisively exceeded. According to a Reuters report, the banking giant reported a staggering $28.88 billion in profits for the three months that ended in June.
The key driver behind this remarkable feat is the recognition of $28.93 billion in negative goodwill related to the Credit Suisse acquisition. Negative goodwill represents the excess of fair value of acquired assets over the purchase price.
In this case, UBS’s acquisition of Credit Suisse seems to have brought in assets that were valued significantly higher than the price paid. This financial boost stems from UBS’s ability to acquire Credit Suisse at a discounted price of 3 billion Swiss francs ($3.4 billion), enabling the bank to unlock substantial hidden value.
While the negative goodwill resulting from the acquisition has played a significant part in UBS’s reported earnings, the bank’s emphasis on operational efficiency and strong financial standards should not be underestimated.
Underlying earnings before tax, which includes negative goodwill, integration-related expenses, and acquisition costs, remains impressive at $1.1 billion. This figure illustrates that, even in the absence of a significant windfall from negative goodwill, UBS’ operational performance remains stable and resilient.
Return on Tangible Equity (ROTE) is another pivotal measure that provides insight into a bank’s profitability. Excluding negative goodwill, integration-related expenses, and acquisition costs, UBS’s ROTE stood at 4.3%.
UBS to Fully Integrate Credit Suisse’s Domestic Banking Unit
Additionally, UBS has announced its decision to fully integrate Credit Suisse’s domestic banking unit into its operations. The merger of legal entities is expected to conclude by 2024, marking a significant step in the aftermath of UBS’s acquisition of Credit Suisse. This strategic move is not without its obstacles and debates, but it demonstrates UBS’s dedication to improving its operations and attaining long-term growth.
Credit Suisse’s flagship Swiss bank, a crucial profit center for the group and the only division that generated positive earnings in 2022 was at the forefront of discussions during the acquisition.
Analysts had speculated on various outcomes, including the possibility of UBS spinning off and floating the division in an IPO. However, UBS’s CEO, Sergio Ermotti, has affirmed that integration is the best course of action for UBS, its stakeholders, and the Swiss economy.
In addition to the integration news, UBS has also set its sights on substantial cost savings. The bank has announced a target of at least $10 billion in gross cost savings by 2026, following the completion of the integration of all Credit Suisse Group businesses.