UBS Sets Record in Banking Industry with $29 Billion Profit After Credit Suisse Takeover

UBS, the Swiss bank, has shattered banking industry records by reporting the largest quarterly profit ever achieved by a bank. The bank's remarkable success can be attributed to its takeover of Credit Suisse, which resulted in a staggering $29 billion profit.

Unprecedented Profits from M&A Deal Propels UBS

On August 31st, UBS unveiled its trading figures, affirming its commitment to absorbing Credit Suisse's domestic business, even in the face of opposition from the local community and political leaders. This historic deal is expected to bring about extensive job cuts and branch closures within the merged entity.

UBS stepped in to rescue its struggling rival five months ago, a move that has paid dividends, resulting in a record pre-tax profit of $29 billion. The exceptional accounting gain of $3.4 billion reaped from the takeover contributed significantly to this extraordinary achievement. Notably, JPMorgan held the previous record with a quarterly profit of $14.3 billion in early 2021. Excluding the accounting growth, UBS still recorded a notable pre-tax profit of $1.1 billion in precious quarters.

UBS and Credit Suisse: A Merger Underway

Credit Suisse's domestic business will continue to operate independently until the legal merger with UBS is finalized next year. By 2025, both Swiss banks will be fully merged, and UBS will gradually wind down all of Credit Suisse's domestic financing commitments. The merger of their international businesses has already taken place; however, Credit Suisse reported an overall pre-tax loss of SFr9.3 billion ($10.6 billion) in the second quarter due to client withdrawals totaling SFr39 billion.

Controversial Decision and Public Opposition

UBS's decision to incorporate Credit Suisse's domestic business and phase out the renowned 167-year-old banking brand sparked considerable controversy. A public opinion poll conducted shortly after the merger deal in March uncovered widespread opposition from three-quarters of Swiss citizens regarding UBS's consolidation of its domestic business with its former rival.

UBS Strides Forward Since Credit Suisse Rescue

In addition to the record-breaking profit, UBS announced its intention to finalize the broader Credit Suisse group's merger by 2026, while simultaneously cutting costs by a minimum of $10 billion. UBS CEO Sergio Ermotti indicated that around 3,000 employees in Switzerland would be laid off in the coming years. The majority of these job losses, however, are expected to occur due to retiring or departing staff members who will not be replaced.

Notably, the accounting gain of $29 billion, also known as negative goodwill, reflects the disparity between the book value of Credit Suisse's assets and the lower price paid by UBS. Market analysts initially projected even greater profits of $33 billion; however, due to Credit Suisse's loss this year, UBS recorded a writedown on certain Credit Suisse assets.

Financial Metrics and Recent Developments at UBS

UBS reported a year-on-year decline of 4% in wealth management profits, but experienced a significant 54% increase in retail and corporate banking profits. The wealth management profits from investment banking decreased by a staggering 91%, while there was a 66% decline in investment banking profits overall.

The release of UBS's financial results was postponed by five weeks to allow for the development of a comprehensive plan for Credit Suisse. During this period, UBS successfully resolved various longstanding legal and regulatory disputes. Most notably, the bank agreed to pay $1.4 billion to settle a U.S. regulator's investigation into the alleged misselling of residential mortgage bonds before the 2008 financial crisis, effectively ending the case. This marked the final lawsuit among major banks regarding this specific matter brought by the U.S. government.

UBS, Steadfast and Independent

It is important to mention that UBS has decided against utilizing the 9 billion SFr support offered by the Swiss government to safeguard against losses following the acquisition of Credit Suisse. Furthermore, UBS has concluded the SFr100 billion liquidity support provided by the Swiss National Bank during the banking sector crisis earlier this year, which culminated in the takeover of Credit Suisse.

Since committing to rescue Credit Suisse in March, UBS shares have experienced a staggering increase of nearly 40%. In contrast, the Euro Stoxx Banks index, which tracks European lenders, has risen by 16% during the same period. As a testament to UBS's success, the bank's shares surged by 6% on the morning of August 31st, reaching their highest level since 2008.