Swiss banking behemoth UBS on Tuesday reported a 71% increase in first-quarter net profit, reaching nearly $1.8 billion, far surpassing expectations, after experiencing two consecutive quarters of losses attributable to the mammoth takeover of Credit Suisse.
Switzerland's biggest bank said its turnover increased by 46% to $12.7 billion, largely thanks to its investment banking arm, which had been the key part of the mega-merger.
UBS shares jumped as much as 10% and were on track for their biggest one-day gain since March 2023, when authorities orchestrated its rescue of Credit Suisse.
The bank's investment banking revenues increased by 16%, driven by a more favorable market climate and by the good performance of initial public offerings (IPOs) and mergers and acquisitions.
Last March, Swiss authorities strongarmed UBS into the $3.25 billion takeover to prevent Credit Suisse from going under with catastrophic consequences for the global financial system.
The bank's results for the first three months of 2024 were a chance to review its progress since integrating Credit Suisse.
"A little over a year ago, we were asked to play a critical role in stabilizing the Swiss and global financial systems through the acquisition of Credit Suisse, and we are delivering on our commitments," said UBS chief executive Sergio Ermotti.
"This quarter marks the return to reported net profits and further capital accretion – a testament to the strength of our business and client franchises and our ability to deliver significant progress on our integration plans while actively optimizing our financial resources."
Cost reductions
UBS posted a $785 million loss in the third quarter of 2023 and was down $279 million in the fourth quarter.
Many analysts expected UBS's results to return to positive territory following the 2024 first-quarter figures published by U.S. banks in the same league.
Analysts surveyed by the Swiss financial newswire AWP had, on average, expected UBS to post a net profit of $637 million.
But Switzerland's leading bank far exceeded expectations, with Swiss investment management firm Vontobel describing the results as "massively above estimates."
UBS continued its cost reductions, making $1 billion in additional savings during the first quarter. The cumulative figure since the merger amounts to $5 billion, or nearly 40% of the $13 billion target for 2026.
By the end of the year, the group hopes to achieve another $1.5 billion in savings.
Analysts with the Zurich Cantonal Bank said the results showed that in an improved environment, UBS could both increase revenues and reduce costs.
"The bank, therefore, still appears to be on track to implement the integration of Credit Suisse in line with the target plan," ZKB said.
Regulation on the horizon
Though Tuesday's first quarter figures were better than expected, investors are watching to see how UBS deals with looming tighter regulation for Switzerland's banking sector.
The merger of the two largest banks in the country created a megabank of troubling size in relation to the Swiss economy.
The Swiss government unveiled a project last month aimed at toughening the rules on banks regarding bonuses and the capital they must set aside to face a crisis.
According to calculations by some experts, UBS may need to build an additional liquidity cushion of $15 billion to $25 billion – figures that Finance Minister Karin Keller-Sutter told a newspaper were plausible.
Ermotti told a conference with analysts it was "an important discussion for the country," but while hoping for a reasonable outcome it was still "too early to speculate on the impact" the changes might have.
In the 12 months following the Credit Suisse takeover, UBS shares gained 59% on the stock market.
However, since April, shares have fallen back as investors worry about the additional amounts that the bank will have to put to one side.