UBS - UBS takes $665M hit for RMBS matter in Q1; looks forward to Credit Suisse merger

2023-04-25 11:04:15 ET

UBS Group ( NYSE: UBS ) registered ordinary shares dropped 2.8% in U.S. Tuesday morning trading after its Q1 profit before tax slid 45% from a year ago, largely due to provisions of $665M it set aside to resolve U.S. residential mortgage-backed securities litigation.

The company is in advanced talks with the U.S. Department of Justice, and CEO Sergio Ermotti said he's "pleased that we are making progress toward resolving this legacy matter which dates back 15 years."

Group profit before tax was $1.50B fell 45% Y/Y. That includes net credit expenses of $38M, which increased from $18M in Q4 2022 and from $7M in Q1 2022.

On an underlying basis, Q1 profit before tax declined 22% to $2.35B.

On the positive side, UBS ( UBS ) attracted inflows in all regions during the quarter. The firm gained $28B of new new money in its Global Wealth Management division, with $7B of that in the last 10 days of March, after it announced its pending acquisition of Credit Suisse ( CS ).

UBS ( UBS ) also saw $20B in net new fee-generating assets in GWM in Q1, $14B of new new money in Asset Management, and CHF 0.9B ($1.0B) of net new investment products for Personal Banking.

"Overall, we saw broadly stable loan balances as loan growth in Switzerland offset deleveraging in other regions," the company said. "As clients repositioned their investments in response to interest rate increases, we captured demand for higher yield into money market funds and U.S.-government securities."

The company expects to complete its acquisition of Credit Suisse ( CS ) in Q2, a move that will advance its strategy, particularly in Global Wealth Management and its Swiss bank.

After the acquisition, UBS ( UBS ) plans to reduce the risk and resource consumption of Credit Suisse's ( CS ) investment banking business, with plans for the combined Investment Bank (excluding assets and liabilities defined as non-core) to account for ~25% of Group risk-weighted assets.

Regarding the macroeconomic outlook, bank stability concerns have waned but haven't vanished, the company said. "As a result, client activity levels could remain subdued in the second quarter of 2023. Weak client sentiment may affect net new assets in our asset-gathering businesses; however, we expect net interest income will remain at higher levels, compared with last year, in the current interest reate environment," it said.

Earlier, UBS ( UBS ) GAAP EPS of $0.32, revenue of $8.74B, strong liquidity and capital amid uncertain market conditions.

For more on UBS and Credit Suisse merger:

Merger: Not Without Consquences

Why the Market Is Right to Be Cautious

Fed approves UBS's acquisition of Credit Suisse's U.S. business

UBS Feasting Off the Credit Suisse Carcass

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