By
Bhushan Akolkar
April 12th, 2024
The UBS report for Q3 2023 showed that the company’s net loss increased because of expenses necessary due to the Credit Suisse integration.
Multinational investment bank and financial services company UBS Group AG (SWX: UBSG.SW) has published its report for Q3 2023, showing a disappointing net loss. The banking giant announced $785 million in net loss for the quarter, disappointing the market. Analysts Reuters polled had put the net loss for the quarter at $444 million.
Most of the loss was because of expenses UBS acquired following the recent acquisition of Swiss-based global investment giant Credit Suisse AG. UBS expenses related to the deal hit $2 billion. Nonetheless, UBS CEO Sergio Ermotti spoke about the deal with optimism. In a statement, Ermotti said:
“We are executing on the integration of Credit Suisse at pace and have delivered underlying profitability for the Group in the first full quarter since the acquisition. Our clients have continued to place their trust and confidence in us, contributing to strong inflows across wealth management and our Swiss franchise.”
Other Specifics from UBS Q3 2023 Report
UBS total group revenues for Q3 2023 climbed 23%, from $9.54 billion in Q2 to $11.7 billion. Also, the bank’s CET1 capital ratio, which indicates liquidity, remained at 14.4% from Q2. Interestingly, Credit Suisse Wealth Management brought net new money inflows ($22 billion) for the first time since Q1 2022.
UBS also had $844 million underlying profit before tax, which Citi analysts noted was higher than the company’s previous guidance, and 6% more than Citi’s forecast. Despite the net loss coming in higher than expected, Citi said the UBS Q3 2023 report was “overall a good set of results”. It also confirmed the Buy/High Risk rating for UBS.
As UBS continues to integrate Credit Suisse’s banking unit, a few changes are expected. For instance, there is a high chance that UBS will retrench, significantly cutting a large percentage of the bank’s employee count.
Nonetheless, UBS said Credit Suisse clients and Personal and Corporate Banking (P&C) divisions contributed $22 billion to its total new deposits of $33 billion across its P&C and Global Wealth Management divisions.
The $3.2 billion deal involved an agreement with the Swiss government to help the acquisition. The government agreed to cover potential losses of 9 billion francs ($9.9 billion) possibly incurred from winding down Credit Suisse. However, the guarantee will only be possible if the losses from liquidation cross 5 billion swiss francs.
The deal also grants Credit Suisse’s shareholders one UBS share for every 22.8 outstanding shares held. This agreement between both giants was necessary because, as it was an emergency acquisition, Credit Suisse shareholders could not vote.
Q2 Profit from Credit Suisse Acquisition
In August, UBS posted a record Q2 2023 profit, interestingly driven by its Credit Suisse acquisition. While analysts expected a net profit of $12.8 billion for Q2, the bank scaled the forecast by more than 120%, reporting an impressive $28.88 billion for the period. Much of this was from $28.93 billion in negative goodwill from the Credit Suisse acquisition. Apparently, UBS had overpaid for several assets, much higher than actual value. Negative goodwill is excess left after the fair value of the purchase price.