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UBS is keeping its old name as it integrates Credit Suisse. Worth mentioning. The combination acronym BUC(K)S is too explicit about what the acquirer expects. The Swiss lender paid just 6% of tangible book value to the struggling rival. also took huge risks. Results for the second quarter suggest that these are decreasing.
After the global financial crisis, success in wealth management became the holy grail for banks. UBS’s low-priced acquisition of Credit Suisse reflects market concerns about the toxicity of Credit Suisse’s internal assets and UBS’ ability to retain wealth management clients. Local politics could force UBS to divest Credit Suisse’s profitable domestic lender.
So far, the double act of chairman Colm Kelleher and chief executive Sergio Ermotti has done a good job of addressing all three. UBS plans to absorb the Swiss bank. It promised no layoffs until the end of 2024. In the end, about 3,000 people will leave. The debate will continue in Switzerland.
What’s more, UBS will halve Credit Suisse’s $55 billion of runoff assets (the market’s feared portfolio) by the end of 2026. This is ahead of schedule.
Investor approval. UBS’s price-to-tangible book value ratio has climbed from 0.7 times estimated in the deal to the level expected for year-end TBV per share. UBS should aim to recover to 1.5x within a few years.
Negative goodwill (a discount to net asset value) accounted for almost all of its $29.2 billion pre-tax profit. This is what we expected. Excluding adjustments, pretax profit of $1.1 billion missed analysts’ expectations by about 28%. Credit Suisse alone lost $2.3 billion in the period, almost half from its investment banking business.
But client inflows in the wealth management sector are more important. UBS alone posted $16.2 billion in net new funding, the bank’s best quarterly performance in more than a decade. Almost all the money comes from Switzerland.
Credit Suisse lost assets in the quarter, but flows turned positive in June. Combined net new money flows by banks were $8 billion in July and August. So far, domestic rivals such as Julius Baer have had little luck stealing customers.
The 5% gain on the day reflected these inflows. That’s pretty good considering where the stock has been since early July. That makes UBS the top European bank by market capitalization. These indicators prove that UBS has earned a bargain.
The Lex team is interested in hearing from more readers. Let us know in the comments section below if you think UBS will make the acquisition a success.
The report was updated to say that UBS posted a pre-tax profit of $1.1 billion in the second quarter.