The integration costs linked to the bank's purchase last spring of Credit Suisse took a toll on the bottom line, but net new assets and revenues rose. UBS reaffirmed targets on cost margins, expense reduction, net new assets and other performance metrics.
UBS yesterday reported an underlying operating profit of $592 million for the final three months of 2023, slumping from $1.869 billion a year ago, with losses stemming from investment into SIX Group and the integration costs involved in buying Credit Suisse being among the causes.
For much of 2023, Switzerland’s largest bank has been working on integrating Credit Suisse after the latter was bought last spring in a deal that left the Alpine state with one universal bank. UBS expects to wrap up its merger with Credit Suisse by the end of the first half of 2024.
There was a pre-tax loss of $751 million in Q4 2023, Zurich-listed UBS said in a statement.
UBS said it maintained its capital strength, with a Common Equity Tier 1 ratio of 14.5 per cent. The lender raised its 2023 full-year ordinary share dividend by 27 per cent on a year ago to $0.7 per share.
Looking ahead, the bank reiterated its desire to have a cost/income ratio of less than 70 per cent, and it is targeting cost savings of around $13 billion by the end of 2026. It also wants to achieve more than $5 trillion of invested assets in global wealth management by 2028 with about $100 billion of net new assets per year by 2025, building to around $200 billion per year by 2028.
Since UBS began its acquisition – carried out at the behest of the Swiss federal government amid Credit Suisse’s dire financial situation after a run of mishaps and scandals – UBS has taken in net new assets of $77 billion in its global wealth management arm.
At present, with the costs of the Credit Suisse deal and other factors in the mix, UBS’s cost/income ratio is 105.7 per cent; on an underlying basis, it is 93 per cent.
“2023 was a defining year in UBS’s history with the acquisition of Credit Suisse. Thanks to the exceptional efforts of all of our colleagues, we stabilised the franchise and have made tremendous progress in the integration. In addition, clients entrusted us with $77 billion of net new assets since the acquisition and relied on our advice in a challenging geopolitical and macroeconomic environment,” Sergio Ermotti, group chief executive, said.
In other details, UBS said Q4 2023 underlying pre-tax profit – at $592 million – fell 35 per cent from the preceding quarter, mainly caused by lower client activity and billable invested assets, as well as $75 million in bank levy expenses and $60 million from a US Federal Deposit Insurance Corporation special assessment to recover losses incurred by the fund in connection with the failures of Signature Bank and Silicon Valley Bank.
Global wealth management
UBS said that at its global wealth management (GWM) arm, Q4 2023 total revenues increased 18 per cent year-on-year to $5.444 billion, mainly due to the consolidation of Credit Suisse revenues; it included $284 million of accretion of PPA adjustments on financial instruments and other effects, partly offset by losses of $190 million related to UBS’s investment in SIX Group. Excluding accretion effects and the aforementioned losses, underlying total revenues were $5,351 billion.
Net credit loss releases were $7 million, compared with net expenses of $3 million in the fourth quarter of 2022. Operating expenses rose 43 per cent year-on-year to $5.070 billion, mainly caused by the consolidation of Credit Suisse expenses, integration-related expenses, higher financial advisor variable compensation and the aforementioned US FDIC assessment.
“Net new money inflows into the wealth management business look healthy, and UBS seems to have stemmed the tide of client withdrawals that plagued Credit Suisse in the last few quarters of its existence," Johann Scholtz, equity analyst, European banks at Morningstar, said.