Loss expected in third quarter: Signs still point to storm at UBS

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Now it’s finally back to the bare numbers at UBS! While the focus is still on the question of what exactly should happen to Credit Suisse when second-quarter results are presented at the end of August, operational business performance is now likely to be more at the forefront. UBS’s third-quarter results include Credit Suisse’s performance for the entire period for the first time; Second quarter results include June only.

Accordingly, analysts expect a significant loss in both pre-tax earnings and net earnings in the range of $400 to $500 million in the announced figures, according to analyst estimates compiled by the AWP news agency.

However, the adjusted figures will be more meaningful in terms of operational performance, that is, without integration costs and similar extraordinary items. In the last quarter, results were greatly influenced by special factors arising from the CS acquisition: as a result, the bank achieved record profits of almost US$ 29 billion.

What about sewers?

According to information from the end of August, UBS wants to achieve a balanced pre-tax result on an adjusted basis in the period from July to September. Since the values ​​of two of the quarters were already more or less known when the targets were formulated, it is unlikely that the actual figures will deviate too much. In fact, the bank expects pre-tax profits for the entire second half of 2023, although the order of size is not given.

In general, observers will first monitor the extent to which new subsidiary CS’s results stabilize. UBS had mentioned that stability would be achieved between June and August regarding the outflows here, so the focus will be on developments in September and October.

In the entire first half of 2023, there was a net asset outflow of approximately 100 billion francs, of which 74 billion belonged to asset management. Overall, net new money inflows for the bank as a whole shouldn’t have much potential for surprises, with UBS quoting a positive US$8bn figure for July/August across its combined asset management business.

How much has been saved already?

From an operational perspective, according to ZKB’s preview, particular attention will be paid to disclosures about client activities and the investment bank’s performance amid the intensive integration process. And last but not least, great attention is paid to the costs associated with integration. It will be interesting to see how much has already been saved when the figures are presented.

Overall, management projects cost savings of over $10 billion by the end of 2026 compared to 2022. Since a large portion of bank costs are personnel costs, personnel reductions are one of the most important savings factors. According to Ermotti, 3,000 people will be laid off in Switzerland in the next two years. There is speculation in the media worldwide that up to 35,000 jobs out of a total of 120,000 will be laid off. However, it is doubtful whether there is any news about this.

Multiple departures from Credit Suisse

Many people have already quit CS. According to UBS, the number of people working in CS decreased by 8,000 at mid-year compared to the end of 2022. It is not surprising that among them there are employees that UBS would like to retain, and this is unlikely to be avoided over a big period. merger. The most prominent example of this is Sabine Heller: she was appointed director of the Zurich region at the end of September, but before taking up the position she left UBS for Lombard Odier.

As part of the quarterly reporting there should also be more detail on the processing of CS transactions, which UBS does not wish to retain. These are grouped under “bad banks” called “Non-Core and Legacy”.

First of all, UBS management wants to get rid of a large part of CS Investment Bank. As of mid-2023, so-called risk-weighted assets (RWA) were approximately $55 billion. About half of these are expected to be dismantled by the end of 2026. (pbe/SDA)

Source :Blick