UBS smashes banking record as it absorbs Credit Suisse

UBS Group AG has seized the limelight recently with a record-breaking quarterly profit during the second quarter, a move that has sent seismic waves through the financial landscape. The origin of this astounding success can be traced back to UBS’s swift and strategic takeover of Credit Suisse. The manoeuvre, deemed an emergency response, not only propelled UBS into uncharted financial territory but also ushered in an era of unparalleled ambition as the banking giant affirmed its intentions to fully absorb the local business of its erstwhile rival by the coming year.

The staggering $29 billion (CHF25 billion) windfall materialised as a consequence of the accounting disparity between the $3 billion acquisition price tendered by UBS for Credit Suisse and the actual value of the acquired institution’s balance sheet. This strategic masterstroke has thrust UBS into an enviable position, now presiding over a colossal $5 trillion in client assets, positioning it as a formidable contender for global dominance in the high-stakes arena of wealth management.

In a calculated move that has industry insiders buzzing, UBS unveiled a slew of vital statistics during the maiden combined UBS-Credit Suisse quarterly earnings announcement. Key revelations include a commitment to achieve cost savings exceeding $10 billion by the conclusion of 2026, a noteworthy $16 billion influx of net new assets in the quarter, a noteworthy deceleration of outflows from Credit Suisse, which tapered to 39 billion Swiss francs ($44.4 billion), and a discernible uptick in client engagement. Market pundits anticipate a sustained surge in asset inflows.

Nearly three months after sealing the deal to assimilate Credit Suisse, UBS’s Chief Executive Officer, Sergio Ermotti, is now immersed in orchestrating one of the most monumental mergers in the annals of global finance. This Herculean endeavour entails an extensive workforce restructuring, fraught with potential legal entanglements, ballooning expenditures, and heightened political scrutiny, particularly in light of the looming Swiss election.

Mr. Ermotti, in the earnings release, articulated the magnitude of this historic consolidation, stating that this combination will reinforce UBS’ status as a premier global franchise, and one that its home market Switzerland can be proud of. We are humbled by this task, and the responsibility entrusted to us.

UBS has emerged as the star performer of the European banking galaxy, with its share price surging by an impressive 30% this year. The staggering accounting gain for the quarter significantly eclipses the $14.3 billion profit reported by JPMorgan Chase & Co. in the first quarter of 2021, setting a modern benchmark for both US and European financial institutions.

With the veil of uncertainty now lifted, UBS has finally laid to rest lingering speculations regarding the fate of Credit Suisse’s domestic unit, historically the most consistently lucrative among its subsidiaries. The two banking behemoths will continue to operate independently until the planned legal merger in 2024, with the Credit Suisse brand remaining intact until clients are seamlessly transitioned to the UBS systems, a transition slated for 2025.

Mr. Ermotti, a seasoned UBS veteran, recognises the intricate political nuances entwined with the Credit Suisse merger, a venture he was specifically recalled to oversee. In a surprising turn of events, UBS opted to voluntarily relinquish a safety net that had been meticulously negotiated as part of the acquisition, which included a government backstop worth 9 billion Swiss francs ($9.4 billion). This strategic move bestows added flexibility upon the bank, particularly in managing its domestic franchises.

As UBS positions itself for the arduous task of integrating its former rival, aiming for a cost-to-income ratio below 70% by the close of 2026, investors brace themselves for the journey ahead. The bank anticipates an underlying pre-tax profit for the group in the third quarter hovering around breakeven. Previous guidance from UBS indicated potential mark-downs of approximately $13 billion on Credit Suisse assets and legal liabilities of up to $4 billion during the initial year of integration.

Additionally, UBS revealed that its wind-down unit, housing businesses inherited from Credit Suisse that do not align with its strategic vision, carried roughly $55 billion of risk-weighted assets at the close of the quarter, with approximately $8 billion in positions successfully divested during the same period.

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