Five months after acquiring Credit Suisse, UBS has finally demonstrated to the world just how lucrative this once-doubted deal has been.
On Thursday, UBS released its first financial report since the acquisition of Credit Suisse. The results revealed that, thanks to the $28.9 billion in negative goodwill "accounting boost" from the Credit Suisse acquisition, UBS achieved a net profit of $28.88 billion for the second quarter, setting a record for the highest quarterly profit among European and American banks.
The most lucrative aspect of this deal was the acquisition price. UBS purchased Credit Suisse for a mere $3.4 billion, which is only 6% of the latter's tangible book value.
Interestingly, the negative goodwill from Credit Suisse was lower than UBS's initial estimate of $34 billion after a preliminary review of Credit Suisse's books in May and far below the $53 billion at the end of 2022. This figure best illustrates the potential short-term value the deal could create for UBS shareholders.
UBS recognized $830 million in integration costs for the second quarter, but this was offset by the $1.1 billion generated from actual operations.
Strategic Moves
Sergio Ermotti, UBS's CEO, also confirmed that UBS would retain Credit Suisse's most profitable business - the domestic consumer banking division. Additionally, the bank has retained the most attractive assets, clients, and employees from Credit Suisse's investment banking and wealth management departments.
As one of the largest bank acquisitions in European and American history, UBS's stock price has soared by 32% year-to-date, reaching its highest level since the 2008 financial crisis. Its U.S. stock has risen by 40% this year.
Currently, UBS's market capitalization stands at $92 billion, surpassing BNP Paribas to become the second-highest valued bank in Europe, trailing only HSBC. Moreover, UBS's market cap has now exceeded that of Citibank, one of the largest banks in the U.S.
UBS stated in its report that funds have started to flow back, with the bank seeing a net increase in wealth management assets of $8 billion in July and August.
UBS's Common Equity Tier 1 (CET1) ratio rose from 14.2% in the same period last year to 14.4%, surpassing market expectations. In response, Citigroup analyst Andrew Coombs said this is good news for shareholder returns.
He mentioned, "This suggests that stock buybacks might commence much earlier than initially anticipated, along with the announced dividend plans."
Coombs believes that UBS might restart stock buybacks in the first half of next year.
Reactions
"UBS's performance is simply astonishing," said Cédric Wermuth, co-chair of the Social Democratic Party, Switzerland's second-largest political group. He dubbed the deal the "deal of the century," but at the expense of the Swiss people's interests.
