A ‘historic’ result but still a ‘construction site’: Analysts react to blowout UBS earnings

by | Aug 31, 2023 | Financial

Swiss authorities brokered the controversial emergency rescue of Credit Suisse by UBS for 3 billion Swiss francs ($3.37 billion) over the course of a weekend in March.Fabrice Coffrini | AFP | Getty ImagesUBS shares rallied to 15-year highs on the back of what analysts branded a “historic” earnings report, though Deutsche Bank said the Swiss banking giant may remain a “construction site” for some time.The group posted second-quarter net profit of $28.88 billion on Thursday as a result of $28.93 billion in negative goodwill from its acquisition of stricken rival Credit Suisse, which was brokered by Swiss authorities in March and completed on June 12.UBS also announced that it will fully integrate Credit Suisse’s Swiss banking unit, a key profit center, in 2024. This will result in 1,000 redundancies on top of a further 2,000 reduction in head count across the group as part of a mass restructure of the rescued lender.UBS shares were up 5.6% by midafternoon in Zurich on Thursday, touching levels not seen since late 2008.Notably, UBS highlighted that the massive net asset and deposit outflows seen by Credit Suisse over the last year have finally begun to reverse, and turned positive in June. Meanwhile, UBS’ CET1 ratio, a measure of bank solvency, nudged up to 14.4% from 14.2% in the same period last year, despite the disruption of one of the largest mergers in banking history.”The underlying UBS business is seemingly not impacted by the deal. Non-Core is significant but made solid progress and the CET1 ratio was strong/ahead of expectations in 2Q23,” Deutsche Bank analysts Benjamin Goy and Sharath Kumar said in a research note Thursday.”Clearly the group remains a construction site in the near term, however we believe this set of results and announcements should give confidence in the mid-term bull case, Buy.”This bullishness was echoed by Bruno Verstraete, partner at Zurich-based Lakefield Partners, who told CNBC that Thursday’s result was a “once in a blue moon, historic number.””Clearly the good news is indeed that stabilization came and that the market seems to de-risk what was out there and what was potentially something which still had some hidden dead bodies in the cupboard,” he said, referring to the Credit Suisse’s troubled history of legacy compliance and oversight failures.”That seems not t …

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