UBS beats earnings expectations, announces up to $1 billion share buyback

Swiss banking giant UBS on Tuesday narrowly beat fourth-quarter earnings expectations and announced that it would recommence share buybacks worth up to $1 billion in the second half of the year.

The group posted a net loss attributable to shareholders of $279 million for the quarter, its second consecutive loss due to the costs of integrating fallen rival Credit Suisse. However, analysts polled by LSEG had expected a wider net loss of $372 million.

Along with the share buybacks, UBS plans to propose a dividend per share of $0.70, up 27% year-on-year.

In the third quarter, UBS had posted a bigger-than-expected net loss attributable to shareholders of $785 million — which factored in $2 billion in expenses related to the integration of fallen rival Credit Suisse.

After that third quarter report, the market chose to focus on the bank’s strong underlying operating profit before tax, which was well ahead of expectations. For the fourth quarter, that came in at $592 million, below a company-compiled consensus of $762 million.

“I’m very pleased that, on an underlying basis, we saw actually good profitability, and we saw also good momentum with clients. We had $22 billion of inflows in net new assets and also saw very good inflows in deposits across both wealth management and the P&C (personal and corporate banking), we have managed down exposure in non-core and legacy,” UBS CEO Sergio Ermotti told CNBC on Tuesday.

“We also made further improvements in our targets to deliver cost savings by achieving a $4 billion exit rate in cost savings in 2023, so all that contributed to good results, and this gives us the confidence to now tackle the next phase of our restructuring and integration.”

UBS has so far reported a quicker than expected return of client inflows to Credit Suisse’s wealth management business since the takeover, which it completed in June 2023.

The integration of its stricken rival continues, with UBS embarking on a process of cutting around 3,000 Credit Suisse jobs as part of the wider restructure.

UBS announced on Tuesday that it had completed the first phase of the strategic integration, and that the full merger is expected to be completed by the end of the second quarter.

Here are some other highlights:

• Total group revenues were $10.86 billion, down from $11.7 billion in the third quarter.
• CET1 capital ratio, a measure of bank liquidity, was 14.5%, compared to 14.4% the previous quarter.
• Net new assets in the flagship Global Wealth Management were $77 billion, while net new deposits across GWM and the personal and corporate banking division also totaled $77 billion, since closing the Credit Suisse acquisition in 2023.
• For the fourth quarter, GWM net new assets were $21.8 billion.

Ermotti told CNBC’s Silvia Amaro on Tuesday that delays are the biggest risk to the Credit Suisse integration, given the tight targets UBS has set for itself.

“2024 is a pivotal year in that sense, because we are merging in the first half of the year our two parent companies, we are merging the U.S. operation, we are merging the Swiss operations, and this will allow us then to start to realize the synergies,” Ermotti said.

“The IT migration is the second major potential problem but we have a very concrete plan. If you think about it, we have 6,000 deliverable tasks that we need to execute, so we are planning very carefully and also in a way that doesn’t create concentration risk in the execution.”

UBS shares have made an indifferent start to 2024, and were down 3.3% in early trade on Tuesday.

Market to look past ‘accounting noise’ in coming years

Given the various costs associated with the integration, the market will look past the headline figures in UBS earnings and focus on more fundamental indicators for the next few years, according to Morningstar Equity Analyst Johann Scholtz.

“UBS has guided that they are looking only towards 2027 before we are really going to arrive at the situation where all of the accounting noise will be out of the results, but I think there are some other numbers that we can look at that give us a good indication of the underlying health of the business,” Scholtz told CNBC’s “Capital Connection” on Tuesday.

He suggested the key number to focus on is net new money growth in the wealth management division, particularly the Credit Suisse legacy portion of that business.

“The reason why net new money is really that important is because assets under management obviously includes market movement, so it really gives you a good indication of whether the combined entity manages to hold onto clients, and even possibly gain back some of the clients that Credit Suisse lost in its wealth management division due to concerns about the health of the Credit Suisse business,” Scholtz explained.

“It’s also important to take note that the Credit Suisse portion of the wealth management business has actually been close to a breakeven, slightly loss-making position, so it’s really vital for that division that it gets some new assets under management to improve its fee income and return to profitability.”