UBS posts first quarterly loss since 2017 on costs of Credit Suisse deal

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UBS has posted its first quarterly loss in almost six years as the Swiss lender laid bear the costs of integrating Credit Suisse following the state-orchestrated rescue of its rival.

The deal is expected to be a boon for UBS in the long run, cementing its position as global wealth management powerhouse, but the banking industry’s most complex takeover since the 2008 financial crisis has brought risks.

The cost of integrating its rival drove UBS to a net loss of $785mn in the third quarter, the bank said on Tuesday, larger than the $444mn expected by analysts as the bank shouldered $2.2bn of expenses tied to the deal. Stripping those out, the lender generated a pre-tax profit of $844mn.

“We are optimistic about our future as we build an even stronger and safer version of the UBS that was called upon to stabilise the financial system in March and one that all of our key stakeholders can be proud of,” said chief executive Sergio Ermotti.

Ermotti, who returned to the helm within days of UBS agreeing to take over Credit Suisse in March, is set to unveil a new strategy for the combined group next year.

Credit Suisse, which is operating as a subsidiary of UBS and will be legally merged with the wider group next year, had signalled it expected a loss of at least $2.2bn in the third quarter through exiting loans and winding down an investment management contract it signed with US alternative investment manager Apollo last year.

A key challenge for UBS in making the most of the deal is retaining clients who may be put off by the turbulence surrounding the integration. The bank said it had cut 13,000 jobs this year, leaving the combined group’s headcount at 116,000 at the end of the third quarter.

UBS wealth management executives face acute pressure to retain big clients from both banks after the merger, especially in the Middle East, where several key relationship managers have defected to rivals.

The Swiss bank recently extended a $9bn credit facility to Qatar’s former prime minister, Sheikh Hamad bin Jassim bin Jaber al-Thani, who was a client of UBS and Credit Suisse. He also oversaw the Qatar Investment Authority’s investment in Credit Suisse during the 2008 financial crisis.

UBS managed to bring in $22bn of net new money into its wealth management business in the quarter, offering attractive interest rates as it fought to win back clients who had pulled their money in the immediate aftermath of the takeover.

Across the group, UBS attracted $33bn of net new deposits, with two-thirds coming from Credit Suisse clients.

Echoing the performance of several European rivals, UBS’s investment bank had a lacklustre quarter. It suffered a $230mn loss, largely driven by a fall in global markets revenues and a 50 per cent increase in operating costs, mostly tied to the integration.

“Optically, UBS reported a reasonable set of results,” said Keefe, Bruyette & Woods analyst Thomas Hallett. “However, when we dig a little deeper, it feels somewhat underwhelming.”

In a sign that investors have broadly welcomed the deal, UBS shares have risen 26 per cent since the rescue of its rival.

The shares were given a boost over the summer when UBS said it would not rely on taxpayer money to complete the deal. It terminated a SFr100bn liquidity lifeline offered by the Swiss National Bank at the height of the turmoil that swept the banking sector in the spring and culminated in the Credit Suisse takeover.

In August, UBS reported its biggest-ever quarterly profit, almost entirely driven by a $29bn accounting gain linked to the takeover.

Since completing the acquisition, UBS has tried to settle a spate of long-running legal disputes, including one with the government of Mozambique last month over an alleged £2bn “tuna bond” fraud that wrecked the country’s finances.

UBS on Monday said it had reached an agreement with Lebanese shipbuilder Privinvest to settle a related case in the London High Court.

The takeover itself has sparked at least $9bn of legal claims from investors who lost money on the deal.