UBS Reports $29 Billion Profit, a Record

When UBS agreed to buy its archrival Credit Suisse for a bit of over $3 billion this spring on the Swiss authorities’s behest, analysts and traders mentioned that worth represented a steep low cost. UBS’s newest monetary outcomes replicate simply how a lot of a steal it was.

On Thursday, the financial institution reported a $29 billion profit in its second quarter — sure, billion with a “b” — the biggest quarterly profit in banking historical past.

However that paper acquire belies the challenges that UBS faces because it strikes to finish the biggest takeover of a financial institution because the 2008 monetary disaster. That course of will embrace absorbing a few of its onetime competitor’s home footprint and shuttering a big portion of its funding banking operations.

UBS’s big revenue arises from “badwill,” an accounting phenomenon the place an organization buys an asset for lower than it’s price, resulting in a noncash acquire that basically acknowledges the precise worth of the asset. (It’s often known as “detrimental goodwill.”)

UBS reported that its underlying revenue for the quarter was simply $1.1 billion.

A wave of financial institution rescue offers this 12 months has led to pumped-up income for acquirers. Second-quarter revenue at JPMorgan Chase jumped 67 % largely due to its takeover of First Republic, whereas First Citizens loved a 3,500 % acquire in revenue for the primary three months of the 12 months — to $9.5 billion, from $243 million — after shopping for Silicon Valley Financial institution at a steep low cost.

However UBS has extra work to do earlier than it completes its Credit score Suisse acquisition, which is anticipated by 2026. Amongst 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. However on Thursday, UBS defended its resolution: “Our evaluation clearly reveals that full integration is the most effective consequence for UBS, our stakeholders and the Swiss financial system.”

Credit score 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 — counsel that UBS nonetheless has large hurdles to beat in absorbing the enterprise.

UBS has additionally signaled that it’s going to close a significant portion of Credit score 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 completely satisfied, 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 property after the deal.) Shares within the financial institution closed up greater than 6 % on Thursday, and now commerce at their highest degree because the summer season of 2008.