When UBS agreed to buy its archrival Credit Suisse for more than $3 billion this spring at the behest of the Swiss government, analysts and investors said the price represented a steep discount. UBS’s latest financial results show just how much it stole.
On Thursday, the bank reported a $29 billion in revenue in its second quarter — yes, billion with a “b” — the biggest quarterly profit in the history of banking.
But that paper belies the challenges UBS faces as it moves to complete the biggest takeover of a bank since the financial crisis in 2008. That process has included absorbing some of its former competitor’s domestic footprint and closing a large part of its investment banking operations.
UBS’s big profits come from “bad will,” an accounting phenomenon in which a company purchases an asset for less than its value, leading to a non-cash gain that essentially recognizes the actual value of the asset. (This is also known as “negative goodwill.”)
UBS reported that its underlying revenue for the quarter was just $1.1 billion.
A wave of bank rescue deals this year led to pumped-up profits for acquirers. Second quarter earnings at JPMorgan Chase jumped 67 percent in large part due to its acquisition of First Republic, while First Citizens enjoyed a 3,500 percent gain in the first three months of the year — to $9.5 billion, from $243 million — after buying Silicon Valley Bank at a steep discount.
But UBS has more work to do before it completes its Credit Suisse acquisition, which is expected in 2026. Among its biggest tasks is merging its former rival’s own bank with its own, despite concerns that the move would reduce competition in Swiss retail banking.
The combination of the two would lead to around 3,000 job losses in the country, validating the fear of politicians and voters. But on Thursday, UBS defended its decision: “Our analysis clearly shows that full integration is the best outcome for UBS, our stakeholders and the Swiss economy.”
Credit Suisse’s own results — including a pre-tax loss of 4.3 billion Swiss Francs ($4.9 billion) in the quarter, linked to customer withdrawals and struggles in investment banking — suggest UBS still has big headwinds. which must be overcome by business absorption.
UBS has also signaled it will do so close a significant part of Credit Suisse’s investment banking and trading operations, which helped contribute to the turmoil that led to the collapse of the 167-year-old institution.
So far, UBS shareholders seem happy, especially with bad profits showing how much the bank benefited from bailing out its rival. (UBS manages about $5 trillion in client assets after the deal.) Shares in the bank closed up more than 6 percent on Thursday, and are now trading at their highest levels since day of 2008.