2023-08-31 10:40:45 ET
Summary
- UBS Group AG reported $28.88 billion in profit, beating expectations, largely driven by negative goodwill from Credit Suisse acquisition.
- UBS expects to save $10 billion by 2026 through Credit Suisse integration, but layoffs will contribute to these savings.
- UBS' global wealth management profit decreased by 4% due to higher expenses, with regions like Americas and Asia Pacific seeing a reduction in Q2 profit.
- Synergy from acquisition takes time to show up on UBS Group earnings, and I remain on the sidelines for now.
UBS Group AG ( UBS ) has just reported Q2 earnings report, as Seeking Alpha has covered here . UBS' stock jumped to its highest level since 2008 following the announcement. Readers may recall that UBS recently acquired Credit Suisse, expanding its regional footprint. Hence, most of the numbers in the results are inclusive of Credit Suisse operations. Let us now review The Good, The Bad, and The Ugly from UBS' latest earnings report.
The Good
- UBS reported $28.88 billion in profit when expectations were for $12.8 billion. That's a staggering beat but one almost wholly driven by the negative goodwill related to Credit Suisse, so investors should not expect this to be the start of a new trend.
- The acquisition of Credit Suisse has strengthened UBS' position as the leading wealth manager in Switzerland. The company has basically declared itself a monopoly - in its own words.
- UBS expects to save $10 billion by 2026 as it works through the Credit Suisse integration. Unfortunately though, it appears that layoffs will contribute quite heavily to these savings. That should surprise no one as the much hype "synergy" during acquisitions and mergers quite often starts with layoffs before other aspects of the business like sales and customer service improve over the long-term.
- Book value per share, primarily thanks to the Credit Suisse acquisition, is now at nearly $27, a 50% jump YoY. Despite the pre-market price action, the stock is trading below its book value.
The Bad and The Ugly
- UBS' global wealth management profit decreased by as much as 4% primarily due to higher expenses. With more than $3 trillion in assets under management [AUM], Wealth Management is a core component of UBS' business. Two large regions, Americas and Asia Pacific, reported a combined total of $118 million reduction in Q2 profit YoY. Gains made in Switzerland and EMEA [Europe, Middle East, and Africa] were not enough to offset this decrease. This is an area to keep an eye on as the world in general and U.S. in specific is looking at a soft-landing if not a recession.
For further details see:
UBS Q2 Earnings: Lot More To Do