By UBS, the Swiss banking giant, announced a substantial surge in net profit for the second quarter after acquiring Credit Suisse. The decision to integrate the local banking operation, which was initially considered for spin-off, proved to be a profitable move.
UBS recorded a net profit of $28.88 billion for the quarter, a significant increase from $2.11 billion in the previous quarter. This profit was primarily driven by the $28.93 billion negative goodwill resulting from the acquisition of Credit Suisse, which was supported by the Swiss government.
Despite the impressive figures, UBS’s underlying pretax profit of $1.14 billion fell short of analyst expectations by approximately $400 million.
UBS CEO Sergio Ermotti reiterated that Credit Suisse would not have been able to survive independently due to its “severe flaws.”
Following the announcement, UBS’s shares (UBSG, +5.69% UBS, +0.60%) saw a 5% rise in Switzerland, contributing to a 36% increase in the stock value this year.
Revenue also experienced growth, reaching $9.54 billion compared to $8.03 billion in the previous period. A significant portion of the revenue, $497 million, came from controlling Credit Suisse for one month. The costs, however, also increased, leading to a rise in personnel numbers from 45,286 at the end of the first quarter to 119,100. As a result, the cost-to-income ratio surged from 70.6% in the year-ago quarter to 88.9%.
While Credit Suisse’s wealth management witnessed outflows of $30 billion, UBS’s global wealth management attracted $16 billion. Both banks have invested a total of $8 billion in the current quarter.
UBS announced its decision to retain the Credit Suisse banking operation in Switzerland, which it had initially considered spinning off. According to UBS, operating as a separate entity would have posed challenges in terms of low profitability and a substantial funding gap. The bank plans to merge Credit Suisse with its operations in Switzerland next year.
As a result of the merger, UBS expects to cut 1,000 jobs, and an additional 2,000 job cuts are anticipated in other Credit Suisse business areas.
UBS aims to achieve cost reductions of $10 billion by the end of 2026.
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