UBS breaks industry record with $29bn profit after Credit Suisse takeover

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UBS has announced the largest ever quarterly earnings for a financial institution, following a $29 billion profit attributed to its acquisition of Credit Suisse.

The Swiss bank revealed the statistics on Thursday while stating that it will continue to take in Credit Suisse's national operations, despite facing resistance from the local community and politicians. This deal is anticipated to lead to the elimination of thousands of jobs and the closure of numerous branches.

UBS made a commitment to save its struggling competitor five months back and its outstanding pre-tax profit of $29 billion was primarily attributed to the accounting advantage generated from the acquisition worth $3.4 billion.

At the beginning of 2021, JPMorgan recorded a bank profit of $14.3 billion, which was previously the highest quarterly profit.

According to UBS, the domestic operations of Credit Suisse will be operated as separate entities until they are legally merged with UBS next year. The two Swiss institutions will be completely merged by 2025, at which time they will cease all sponsorship commitments related to Credit Suisse's domestic activities.

The international operations of both entities are already coming together, and Credit Suisse disclosed a total pre-tax loss of SFr9.3bn ($10.6bn) in the second quarter due to customer outflows of SFr39bn.

The choice made by UBS to take over Credit Suisse's local operations and remove its long-standing brand has caused a lot of disagreement. This merger marks the first instance where two major global financial institutions will be joined together.

A survey conducted among the public, soon after the acquisition was approved in March, revealed that 75% of the Swiss population objected to UBS combining its national operations with its previous competitor.

Switzerland is gearing up for its upcoming national elections in October, and the repercussions of the consolidation between two of the nation's largest corporations are of paramount concern.

UBS CEO Sergio Ermotti declared on Thursday that their choice regarding Credit Suisse [Switzerland] was made after a meticulous assessment of all the possible alternatives. The analysis conducted undoubtedly demonstrates that complete integration is the most favorable result for UBS, as well as its stakeholders and the Swiss economy.

UBS has also declared its intention to finalize the incorporation of the broader Credit Suisse conglomerate by 2026. During this period, UBS aspires to reduce costs by an impressive $10 billion.

Ermotti announced on Thursday that UBS intends to cut 3,000 positions in Switzerland in the upcoming years. However, the majority of these job reductions will be a result of employees retiring or voluntarily resigning, and their roles will not be filled by new hires.

Credit Suisse has managed to secure a remarkable accounting gain of $29 billion, also referred to as negative goodwill. This gain represents the discrepancy between the recorded value of Credit Suisse's assets and the reduced price that UBS paid for them. Financial experts had initially predicted an even greater gain, amounting to $33 billion. However, owing to the losses Credit Suisse suffered this year and UBS's decision to devalue certain Credit Suisse assets, the ultimate gain has fallen slightly short of expectations.

Not taking into account the accounting boost, UBS achieved a pre-tax profit of $1.1 billion for the quarter.

The most recent outcomes also revealed a decline of 4 percent in profits from managing wealth, while retail and corporate banking profits increased by 54 percent. There was a significant 91 percent decrease in profits from asset management, primarily caused by the sale of a stake in a fund manager the previous year. Investment banking profits also took a substantial hit, dropping by 66 percent.

The outcomes were delayed by a span of five weeks in order for UBS to develop its strategy for Credit Suisse.

Lately, UBS has been resolving past legal and regulatory conflicts.

During this month, it reached an agreement to compensate $1.4 billion to settle a US regulatory investigation regarding the supposed deceptive selling of mortgage bonds for residential properties before the 2008 economic meltdown. Consequently, this concludes the final lawsuit filed by the US government against major banks in relation to this matter.

UBS also stated that it had no plans to utilize the SFr9bn safeguard offered by the Swiss government to protect itself against potential losses resulting from the acquisition of Credit Suisse.

Additionally, it has concluded its reliance on a SFr100bn financial support provided by the Swiss National Bank during the peak of the crisis that affected the banking industry in the spring and reached its climax with the acquisition of Credit Suisse.

After accepting the responsibility to save Credit Suisse in March, the value of UBS shares has surged by almost 40 percent. The Euro Stoxx Banks Index, which monitors the performance of European banks, experienced a significant increase of 16 percent during this timeframe.

The stock of UBS witnessed a significant increase of 6 percent on Thursday morning, reaching its highest level since 2008.