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Fundamental View
AS OF 08 Mar 2024UBS agreed to acquire Credit Suisse in March 2023 after the latter collapsed following a severe liquidity crisis.
CS was a large and complex organisation, so the integration, and the inevitable associated losses and costs, will dominate UBS’s strategic outlook and financial performance for several years.
However, UBS was able to negotiate substantial downside protection which should shield it from losses at CS.
Away from CS, UBS has reshaped its business model, with a greater emphasis on wealth management and less focus on investment banking, particularly fixed income.
Its earnings remain somewhat dependent on capital market conditions, but its capital, asset quality and profitability ratios have been among the best for European banks.
Business Description
AS OF 08 Mar 2024- Headquartered in Zurich, Switzerland, UBS has private, corporate and institutional clients worldwide and retail clients in Switzerland. It is one of the world's largest wealth managers.
- It completed the acquisition of CS on 12 June 2023. It has promised a strategic update with its 4Q23 earnings but confirmed that it will retain CS’s domestic Swiss bank (Credit Suisse Schweiz AG) and will merge it with its own domestic bank (UBS Switzerland AG) in 2024, keeping the CS brand “for the time being”.
- CS’s holding company (Credit Suisse Group AG) has been merged into UBS Group AG, so that the group has a single holding company, but so far the operating subsidiaries, including UBS AG and Credit Suisse AG, have been kept separate. UBS plans to merge the CS operating subsidiaries into UBS’s in 2024.
- UBS operates through its Corporate Center and four business divisions: Global Wealth Management, Personal & Corporate Banking, Asset Management, and the Investment Bank, plus a new Non-core and Legacy division following the acquisition of CS.
- The Investment Bank has been restructured in recent years to scale back fixed income trading and focus on equities trading and origination & advisory business.
Risk & Catalysts
AS OF 08 Mar 2024The acquisition of CS will be a long and complex process, and the necessary restructuring is likely to result in heavy losses and costs, although UBS has substantial protection, not least in the large negative goodwill.
Litigation costs have been a feature of UBS’s results in recent years, although it has agreed settlements in various cases recently.
A French court imposed fines and civil damages of €4.5 bn ($5.1 bn) in February 2019, which UBS appealed. The Court of Appeal retried the case de novo in March 2021 and reduced the fine to €3.75 mn plus civil damages of €800 mn and confiscation of €1 bn. UBS has appealed again and has set aside reserves of €1.1 bn ($1.2 bn) so far.
Key Metrics
AS OF 08 Mar 2024$ mn | 4Q23 | Y23 | Y22 | Y21 | Y20 |
---|---|---|---|---|---|
Return On Equity | (1.3%) | 40.3% | 13.0% | 12.4% | 11.6% |
Total Revenues Margin | 2.6% | 2.9% | 3.1% | 3.2% | 3.2% |
Cost/Income | 105.7% | 95.0% | 72.1% | 73.6% | 73.0% |
CET1 Ratio (Transitional) | 14.5% | 14.5% | 14.2% | 15.0% | 13.8% |
CET1 Ratio (Fully-Loaded) | 14.5% | 14.5% | 14.2% | 15.0% | 13.8% |
Leverage Ratio (Fully-Loaded) | 5.5% | 5.5% | 5.7% | 5.7% | 5.4% |
Liquidity Coverage Ratio | 216% | 216% | 164% | 155% | 152% |
Impaired Loans (Gross)/Total Loans | n/m | n/m | 0.4% | 0.4% | 0.6% |
CreditSights View
AS OF 07 May 2024We have a Market perform recommendation on UBS AG (operating bank) but changed our recommendation on UBS Group (holding company) to Underperform on 10 January 2024. UBS was one of the first investment banks to restructure, exiting much of its fixed income trading business, leaving it with a greater emphasis on wealth management. Its capital and asset quality ratios are among the best for European banks, and it has had no problems complying with Swiss TLAC rules. Its takeover and rescue of Credit Suisse in March 2023 carries significant execution risk, the main reason for our Underperform recommendation, but UBS has substantial downside protection, and we expect its financials to remain relatively sound.
Recommendation Reviewed: May 07, 2024
Recommendation Changed: January 10, 2024
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