UBS shares jump to 2008 highs after profit beat, job cuts announcement

UBS shares reached their highest point since late 2008 during early trade in Zurich on Thursday, after the Swiss banking giant posted a mammoth profit beat and announced thousands of layoffs as it plans to fully absorb Credit Suisse’s Swiss bank.

UBS posted second-quarter profit of $28.88 billion in its first quarterly earnings report since Switzerland’s largest bank completed its takeover of stricken rival Credit Suisse.

Analysts had projected net profit of $12.8 billion for the three months to the end of June, according to a Reuters poll.

UBS said the result primarily reflected $28.93 billion in negative goodwill on the Credit Suisse acquisition. Underlying profit before tax, which excludes negative goodwill, integration-related expenses and acquisition costs, came in at $1.1 billion.

Negative goodwill represents the fair value of assets acquired in a merger over and above the purchase price. UBS paid a discounted 3 billion Swiss francs ($3.4 billion) to acquire Credit Suisse in March.

UBS CEO Sergio Ermotti told CNBC’s “Squawk Box Europe” on Thursday that the bank is making “very good progress” with its integration plans.

“When people look into those numbers, they will clearly understand that this negative goodwill is the equity necessary to sustain $240 billion of risk-weighted assets and the financial resources to go through a deep restructuring that is necessary at Credit Suisse, because our analysis has proven that the business model was not viable any longer,” he told CNBC’s Joumanna Bercetche.

“Credit Suisse has excellent people, clients and product capabilities, but the business model was not sustainable any longer and needs to be restructured.”

UBS shares were up 4.9% around an hour into trading.

Here are some other highlights:

• CET1 capital ratio, a measure of bank liquidity, reached 14.4% versus 14.2% in the second quarter of 2022.
• Return on tangible equity (excluding negative goodwill, integration-related expenses and acquisition costs) was 4.3%.
• CET1 leverage ratio was 4.8% versus 4.4% a year ago.

Credit Suisse’s Swiss bank to be fully absorbed

Credit Suisse’s stalwart domestic banking unit will be fully integrated into UBS, the group also announced on Thursday, with a merging of legal entities expected to close in 2024.

The fate of Credit Suisse’s flagship Swiss bank, a key profit center for the group and the only division still generating positive earnings in 2022, was a focal point of the acquisition, with some analysts speculating that UBS could spin it off and float it in an IPO.

Ermotti said the bank’s analysis had determined that this is “the best outcome for UBS, our stakeholders and the Swiss economy.”

The integration may prove more controversial in Switzerland because of the possibility of heavy job losses in the process. UBS confirmed Thursday that the integration of the Swiss bank will result…