When UBS agreed to purchase its archrival Credit Suisse for slightly over $3 billion this spring on the Swiss authorities’s behest, analysts and buyers mentioned that worth represented a steep low cost. UBS’s newest monetary outcomes mirror simply how a lot of a steal it was.
On Thursday, the financial institution reported a $29 billion revenue in its second quarter — sure, billion with a “b” — the most important quarterly revenue in banking historical past.
But that paper acquire belies the challenges that UBS faces because it strikes to finish the most important takeover of a financial institution because the 2008 monetary disaster. That course of will embody absorbing a few of its onetime competitor’s home footprint and shuttering a big portion of its funding banking operations.
UBS’s large revenue arises from “badwill,” an accounting phenomenon the place an organization buys an asset for lower than it’s value, resulting in a noncash acquire that primarily acknowledges the precise worth of the asset. (It’s often known as “negative goodwill.”)
UBS reported that its underlying revenue for the quarter was simply $1.1 billion.
A wave of financial institution rescue offers this yr has led to pumped-up income for acquirers. Second-quarter revenue at JPMorgan Chase jumped 67 p.c largely due to its takeover of First Republic, whereas First Citizens loved a 3,500 p.c acquire in revenue for the primary three months of the yr — to $9.5 billion, from $243 million — after shopping for Silicon Valley Bank at a steep low cost.
But UBS has extra work to do earlier than it completes its Credit Suisse acquisition, which is anticipated by 2026. Among its largest duties is consolidating its former rival’s home financial institution with its personal, regardless of issues that the transfer will undercut competitors in Swiss retail banking.
Uniting the 2 will result in some 3,000 job losses within the nation, validating fears amongst politicians and voters. But on Thursday, UBS defended its choice: “Our analysis clearly shows that full integration is the best outcome for UBS, our stakeholders and the Swiss economy.”
Credit Suisse’s personal outcomes — together with a pretax lack of 4.3 billion Swiss Francs ($4.9 billion) within the quarter, tied to buyer withdrawals and struggles in funding banking — recommend that UBS nonetheless has massive hurdles to beat in absorbing the business.
UBS has additionally signaled that it’ll shut a good portion of Credit Suisse’s funding banking and buying and selling operations, which helped contribute to the troubles that led to the collapse of the 167-year-old establishment.
For now, UBS shareholders seem blissful, particularly with the badwill acquire exhibiting simply how a lot the financial institution benefited from rescuing its rival. (UBS manages about $5 trillion in consumer belongings after the deal.) Shares within the financial institution closed up greater than 6 p.c on Thursday, and now commerce at their highest degree because the summer time of 2008.
Source: www.nytimes.com