UBS Group AG has released data on the financial results of its operations in the second quarter of the current year, according to which the profit of this bank for the specified period exceeded preliminary expectations regarding the dynamic of the corresponding indicator.

The mentioned result of the lender, whose headquarters are located in Zurich and Basel, is largely related to the positive trajectory of revenue from investment banking operations. Moreover, the financial institution’s performance for April-June of the current year was impacted by progress in the integration of Credit Suisse, which helped UBS chief executive officer Sergio Ermotti step up efforts to return capital to shareholders.

The lender’s net income for the second quarter 2024 was fixed at $1.1 billion. This result is about twice as high as the figures predicted by analysts interviewed by the media.

The growth of the financial institution’s revenue from deals in the investment unit turned out to be higher than the results demonstrated by many similar Wall Street lenders. The loss of arm UBS, which specializes in the winding down assets inherited from Credit Suisse, was recorded at levels below those predicted by analysts interviewed by the media. This result helped to compensate for losses in the wealth management unit of a financial institution.

Currently, UBS is starting to move on an upward trajectory in terms of profitability. A year ago, the deal on the takeover of Credit Suisse by UBS ended. Currently, the financial institution headed by Sergio Ermotti is gradually returning to the profit indicators observed before the specified deal. UBS plans to repurchase approximately $1 billion worth of shares in the current year. At the same time, the financial institution is likely to face a tightening of Swiss regulation, which is planned to realization in the next couple of years. Appropriate measures may cause a sharp increase in capital requirements. Against the background of these prospects, the opinion is spreading among analysts that UBS may be forced to reduce its payouts. Sergio Ermotti, during a conversation with media representatives, stated that, in his opinion, this will not be necessary. He also noted that either towards the end of the current year or at the beginning of 2025, the financial institution will form a full understanding of what vector its activity strategy should have. After that, there will be a more complete understanding of what circumstances and factors will determine the bank’s operating environment.

Sergio Ermotti also said that the financial institution he heads has entered into technical negotiations with the Swiss government and regulators on plans to revise the rules relating to bank capital and liquidity. It is worth noting that the authorities of the mentioned country began to consider making changes to the specified rules after last year’s collapse of Credit Suisse. In this context, there are arguments in favor of characterizing what happened to the mentioned financial institution as an event with political consequences. As part of the situation that developed last year, UBS was actually saving its former competitor. At the same time, the financial institution headed by Sergio Ermotti found itself at the center of increased attention. The current position of the bank is related to its increased size and systemic relevance.

The Swiss Parliament plans to release the results of its investigation into the Credit Suisse crisis by the end of 2024. The relevant conclusions will then be used to formulate new regulations and legislation governing the process of capital movement. At the same time, it is worth noting that UBS already faces high capital requirements for its foreign subsidiaries. According to preliminary estimates, the corresponding figure may reach $25 billion.

It’s worth noting that UBS Chairman Colm Kelleher stated in April of the current year that the Swiss government’s intentions related to increasing the amount of capital that creditors should have is a wrong remedy in terms of the potential effectiveness of this measure as a tool to eliminate the shortcomings that caused the collapse of Credit Suisse last year. He also noted concerns about discussions about additional capital requirements. Colm Kelleher expressed a corresponding opinion on the mentioned intention of the Swiss government at the general annual meeting of shareholders of the financial institution in Basel. Also in this context, he separately noted the special importance of ensuring that the regulatory policy ensures a level playing field. Colm Kelleher clarified that the regulatory practice, applied by the mentioned country, should remain broadly in line with international standards.

The crisis situation, which became a de facto obstacle for Credit Suisse in terms of the possibility of the bank’s continued existence and to some extent turned out to be what can be called an existential threat at the corporate level for the lender, was perceived by the Swiss government as a systemic challenge and a structural problem in the context of the impact on the country’s economy. In general, such a reaction by the authorities is logical. It is worth noting that the high level of competitiveness of the Swiss economy is largely due to the flourishing services sector, including financial services. In the context of this specificity, the collapse of one of the largest banks in the country is obviously a systemic problem or, at least, a similar threat, and not a kind of tragedy of a single business, the consequences of which are limited in scale. In addition, one of the characteristic features of the economic system of Switzerland is its high level of reliability. Within the framework of the historical, traditional paradigm of perception of this country as a kind of functional space offering various advantages, in the broad global environment, the mentioned reliability has become what can be called a status that generates financial and material benefits. The collapse of Credit Suisse ultimately did not become an incident that destroyed or significantly worsened the realized and realizable potential of the Swiss economy. At the same time, it is absolutely obvious that such problems of the giant of the country’s banking sector will provoke questions about reliability, which has become something like a Swiss brand name. Approximately 74% of the gross domestic product of this state is accounted for by the service sector. For the specified reason, this segment has a special and even critical importance for the Swiss economic system. Local banks have become an example of the quality and security of financial means. Against the background of this traditional perception, the collapse of any Swiss lender is a potential reason to change the country’s assessment as a kind of haven for financial resources.

The Swiss authorities are convinced that tightening capital requirements will be an effective preventive measure that will ensure that situations like the Credit Suisse crisis do not repeat in the local banking sector. At the same time, UBS does not agree that the appropriate strategy is appropriate and constructive in terms of matching the causes of what happened to its former competitor. Representatives of the financial institution headed by Sergio Ermotti say that the collapse of Credit Suisse is not a negative result of a lack of capital. In their opinion, in this case, the reason for what happened is the business model, which turned out to be ineffective and provoked a drop in confidence in the lender from consumers and investors.

In April, Colm Kelleher noted that capital requirements for global systemically important banks have increased over the past 15 years. Also in this context, he stated that UBS’s ability to acquire a former competitor is proof that the problem provoking bankruptcy is not related to the specifics of the regulatory framework. This example underlines disagreement with the measures proposed by the Swiss Government.

The Federal Council is convinced that the systemically important Swiss banks should have significantly more capital against their foreign units. Also, in this case, it is proposed to increase the level of capital for specific creditors to take into account future risks to a greater extent.

The measures being considered by the Swiss government effectively single out UBS as the country’s sole globally systemic lender. In this case, the negative reaction from the bank is natural.

Sergio Ermotti in April described 2024 as a pivotal year. Next year, the bank’s prospects and the conditions that will determine for it what can be called a reality for action, meaning external prerequisites and circumstances that affect the business of a financial institution, will become clear. In a certain sense, so far the lender is moving towards the future, the specifics of which are still shrouded in mystery.

Analysts generally positively assessed the financial results of UBS in the second quarter of the current year. At the same time, Deutsche Bank AG experts drew attention to the fact that uncertainty regarding capital return plans remains high.

UBS takes an optimistic approach to forecasting the most probable, in the opinion of the lender, indicators of its activities in the foreseeable future. The financial institution expects that in the third quarter of the current year, investors will demonstrate a favorable mood. In this case, optimism is implied as a kind of emotional platform for assessing the situation. The financial institution also predicts the preservation of the favorable dynamic of client transactions. At the same time, the bank expects that high market volatility will be observed in the foreseeable future. The financial institution assumes that the corresponding state of affairs will become a reality against the backdrop of such circumstances as the US presidential election scheduled for November and the continuing growth of tensions in the space of geopolitical relations. It is worth noting that the mentioned factors have a global scale of impact and are what can be called the features of the reality of the world space, determining the content of the current historical moment.

There is a possibility that UBS’s interest income will decrease in the short term. This dynamic is realistic against the backdrop of cutting interest rates and shifts in the client portfolio.

Sergio Ermotti, commenting on the sell-off in global markets last week, said that in this case, there was a situation that reflected ongoing fragility. He also noted in this context that investors should pay attention to diversification.

As part of the integration, UBS said that from the second quarter of 2023, it managed to reduce Credit Suisse assets, which it planned to wind down by 42%. In the last quarter alone, the mentioned assets amounted to $8 billion.

The wealth management UBS unit saw client inflows of $27 billion. This result is in line with the first quarter. At the same time, higher costs for advisers’ salaries led to the fact that pre-tax profit amounted to $871 million, which is below preliminary expectations. The share of the mentioned unit in the structure of the financial institution’s revenue is about 50%.

UBS reorganized its wealth management arm into a new unit that brings its range of wealth offerings under one roof. There were also changes in the leadership structure of the financial institution. The lender appointed investment bank head Robert Karofsky to run its US business and jointly oversee wealth with Iqbal Khan. Mr. Khan was also made president of the Asia-Pacific region.

The investment unit of the financial institution demonstrated a result for the second quarter of the current year that exceeded preliminary expectations. In this case, a profit before tax of $477 million was recorded. It is worth noting that the mentioned result is largely due to the growth of revenues in the global markets and the global banking businesses.

The financial institution expects that in the third quarter of the current year, the expenses related to integration will be about $1.1 billion. The bank also assumes that the pace of cost savings will decrease. At the same time, the lender expects that the pace of the corresponding process will not be significant.

In June, UBS offered investors in Credit Suisse funds linked to the collapse of Greensill Capital, the deal. In this case, it was implied that the mentioned investors would receive 90% of the value of the fund before they were shuttered. On Wednesday, August 14, the financial institution reported that 92% of investors took advantage of the offer. This deal helped to solve one of the problems that arose during the takeover.

UBS is currently continuing to reduce its headcount. The corresponding decision is being implemented as part of the merger of two global banks. The total number of employees of the financial institution in the second quarter of the current year decreased by more than 3,500 people. Currently, the number of UBS employees is about 133,000 people.

The bank’s CET1 ratio as of the end of the second quarter of 2024 was recorded at 14.9%. It is worth noting that this indicator reflects capital strength.

Analyst Alison Williams says that UBS’s earnings per share estimates may increase after receiving results that included a wealth inflow of $27 billion. Also, according to the expert, in this case, positive sentiment and the dynamic of client activity in the third quarter of the current year may be impacting factors. Separately, Alison Williams noted that equities trading and banking fees beat estimates and deal execution shows progress toward profitability with non-core assets potentially 15% lower than expectations seen in the first quarter.

Also, UBS chief financial officer Todd Tuckner on Wednesday said that UBS agreed to sell Credit Suisse’s US mortgage servicing business last Tuesday, August 13. No information about the buyer is available yet. Todd Tuckner said that the mentioned deal is expected to be finalized in the first quarter of next year. Sergio Ermotti also did not name the buyer, but at the same time noted that it is a consortium.

On the background of the publication of data on earnings in the second quarter of 2024, the value of UBS shares rose by 5.29%.

Commenting on the issue of resistance to bank consolidation in Europe, Sergio Ermotti said that in his opinion, the need for this region to have larger financial players to have independence in relevant matters is a given. He also suggested that it is probably worth recognizing that since the financial crisis Europe has gone too far in fragmenting or not allowing consolidation in the system. In his view, this approach is harmful to the region.

As we have reported earlier, UBS Sues Bank of America.