UBS said on Tuesday it may close its bid for struggling rival Credit Suisse by the end of June after the bank reported a mediocre first-quarter net profit of just $1 billion.
All eyes will be on Switzerland’s largest bank as it prepares for a rescue merger with its closest domestic rival.
Analysts polled by Swiss financial newswire AWP expect UBS to post a first-quarter net profit of about $1.7 billion, down from $2.1 billion a year ago.
Net income in the first quarter was lowered by a $665 million increase in litigation provisions to resolve old disputes related to the U.S. subprime mortgage crisis.
The bank said it was in advanced discussions with the U.S. Department of Justice and reported on its progress in resolving the case.
UBS said its global wealth management arm saw net new inflows of $28 billion, with $7 billion of that coming in the last 10 days of March after the acquisition was announced.
Returning chief executive Sergio Ermotti said he would shed light on the outlook for the Swiss domestic bank as soon as possible in the coming months.
He said any decision would be “based on facts” and that public discussions at this stage were “entirely based on emotion and, in many cases, completely uninformed”.
“Whatever we do has to be sustainable and viable,” he stressed on a conference call with analysts.
There are fears in Switzerland that thousands of jobs could be cut, combined with the fact that the new bank’s sheer size will squeeze choice for consumers and businesses — too big to save the country if it goes into trouble.
UBS shares fell in morning trade on the Swiss stock exchange on Tuesday. Shares were down 3.9 percent at 17.48 Swiss francs in morning trade.
-Q2 Acquisition Target-
On March 19, the Swiss government, central bank and financial regulators forced a $3.25 billion UBS marriage in a tough deal to ensure its smaller but still “too big to fail” rival didn’t go out of business.
“We are focused on completing the acquisition of Credit Suisse, most likely in the second quarter of 2023,” UBS said.
“While acknowledging the size and associated complexities of the Credit Suisse integration and restructuring, we believe this combination presents a unique opportunity to deliver significant long-term value to all of our stakeholders.”
Ermotti said the deal would help “consolidate Switzerland’s leading position as a financial center and benefit the entire economy.”
Analysts at Swiss investment management firm Vontobel Andreas Venditti said UBS’s investment case “has transformed from a capital generation company delivering high capital returns to shareholders to a complex restructuring story”.
“At least UBS got a fair price and significant loss protection,” he added.
– Credit Suisse plummets –
Credit Suisse reported its final quarterly results on Monday, likely ahead of the merger, revealing the desperate situation it finds itself in as it moves ahead with the deal.
The bank has drawn down 61.2 billion Swiss francs ($68.6 billion) in the first quarter of 2023 alone — mostly in the scare during takeovers — after withdrawing 110.5 billion Swiss francs in the fourth quarter of last year.
While Credit Suisse said these outflows had “slowed down”, it acknowledged they had “not yet reversed”.
Credit Suisse posted an inflated first-quarter net profit of 12.4 billion Swiss francs ($14 billion) from a massive loss a year earlier.
But that was largely down to holders of Credit Suisse’s risky debt being emptied out in an emergency takeover deal.
It warned that “significant” losses were coming.