UBS stocks surged higher as the Swiss banking giant exceeded profit expectations by a large margin.
UBS bank made $844 million in operating profit before taxes, which was much better than what most people expected. This success caused UBS stocks to jump by 4% in early trading.
Even though UBS had to spend $2 billion on integrating Credit Suisse, they ended up with a larger-than-expected loss in the third quarter.
The net loss for shareholders was $785 million, which was more than the $444 million loss that analysts predicted in a company survey.
UBS stock surge: CEO Ermotti signifies Q3 progress and challenges
After the surge in UBS stocks, CEO Sergio Ermotti said, “We could see that, compared to the previous quarter, our performance got better in Wealth Management, Asset Management, and our Personal and Corporate banking in Switzerland. They all grew in the most recent quarter.”
While the UBS stocks surged, Ermotti signified the tougher market conditions that the Investment Bank had to deal with, especially because of the business model and the resources UBS has been adding from Credit Suisse.
However, it was a strong quarter, and they made great strides in integration plans. Additionally, UBS saw a substantial increase in client investments.
Strong UBS Q3 results beat expectations
Citi analysts pointed out that the $844 million profit before tax was significantly better than what the company had previously expected (break-even).
It was three times more than what most people anticipated and 6% higher than our optimistic prediction.
As they predicted, the improvement was due to lower operating expenses, which were 7% lower than expected. Also worked for the bank is slightly higher revenues, about 1% above expectations.
However, there were higher provisions that offset some of these gains. It’s worth noting that the increase in new client funds in Wealth Management in September was a positive development.
Citi concluded that the report on Tuesday was, all in all, a positive set of results and reaffirmed its Buy/High Risk rating.
UBS strategic moves for Credit Suisse acquisition
In June, UBS successfully acquired its struggling domestic rival. Then, in August, the company terminated a 9 billion Swiss franc loss protection agreement and a 100 billion Swiss franc public liquidity backup, established during the emergency rescue agreement in March.
In August, the UBS stocks reached their highest level since late 2008. This was driven by the second-quarter earnings report, which showed a net profit of $28.88 billion due to negative goodwill from the Credit Suisse acquisition.
Notably, negative goodwill is the value of assets acquired in a merger that exceeds the purchase price.
In March, UBS paid a discounted amount of 3 billion Swiss francs to acquire Credit Suisse for ($3.33 billion), as facilitated by Swiss authorities to avert the downfall of the troubled lender.
The price of UBS stocks has settled down a bit since then, but it’s still up by over 27% for the year.
Merging and expanding amidst strong deposits
UBS is working on fully merging Credit Suisse’s Swiss banking unit, which is a crucial source of profit.
It’s expected that a significant portion of the legacy bank’s workforce will be reduced during this process.
UBS revealed net new deposits of $33 billion in its Global Wealth Management and Personal and Corporate Banking (P&C) divisions.
Of this total, $22 billion came from Credit Suisse clients. In September, following UBS’s announcement to integrate the domestic bank, there were also positive deposit inflows for P&C.
Earlier this year, the bank disclosed its goal to achieve gross cost savings of at least $10 billion by 2026. This target aligns with their plan to fully integrate all of Credit Suisse Group’s businesses by that time.
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