April 25, 2023
By Noele Illien and Stefania Spezzati
ZURICH, April 25 (Reuters) - UBS (UBSG.S) said
on Tuesday it had set aside more money to draw a line under its involvement in
toxic U.S. mortgages, halving its first-quarter profit as the bank girds itself
for the "hard" task of swallowing fallen rival Credit Suisse (CSGN.S).
Sergio Ermotti, brought back as UBS chief executive to steer the
takeover, said it aims to close the deal with fellow Zurich-based bank Credit
Suisse by May but warned that it could take four years for a full integration.
"There is much to do and there will difficult decisions to
be made in the coming months," he said during a call with analysts.
Meanwhile, the Herculean task of absorbing Credit Suisse
includes dealing with a backlash against the deal at home, where thousands of
jobs cuts are feared.
Shares in UBS were down 1.46% at 0956 GMT following news of the
attempt by Switzerland's biggest bank to make a clean sweep of problems dating
back 15 years to the global financial crisis.
UBS said concerns about the banking sector globally persisted
and customer activity "could remain subdued in the second quarter",
adding, however, that higher interest rates would bolster its lending income.
It reported a 52% slide in quarterly income, having made an
additional $665 million in provisions to cover litigation costs related to U.S.
residential mortgage-backed securities that played a central role in the global
financial crisis.
Net profit of $1 billion was well below the $1.7 billion
consensus average from a UBS-conducted poll.
But the world's largest wealth manager also reported strong
inflows, totalling some $42 billion.
Its flagship wealth management division received $28 billion in
net new money, a quarter of which came in the last ten days of March after the
Credit Suisse rescue takeover deal.
UBS reported a slight drop in year-on-year profit before tax and
revenue for the division, saying there had been an increase in deposit revenues
stemming from higher interest rates but at the same time some clients had
shifted to lower-margin products.
OLD TOXIC
DEBT
UBS was an issuer and underwriter of U.S. residential
mortgage-backed securities in the five years to 2007, according to its annual
report last year.
In November 2018, U.S.
authorities commenced legal action against UBS, seeking penalties for its
involvement in scores of such deals. UBS subsequently lost a court case on the matter.
"We are in
advanced discussions with the US Department of Justice, and I am pleased that
we are making progress toward resolving the legacy matter," Ermotti said.
Investment bank
revenue fell 19% year-on-year, in line with forecasts, and profit before tax
for the division slumped 49%.
UBS said it expects
the takeover of Credit Suisse to close in the second-quarter, possibly in May.
More clarity around which businesses UBS intends to keep will emerge in the
next months, Ermotti said.
Credit Suisse has a
presence in more than 50 countries and UBS said that certain markets where its
former rival is active like Latin America "brings value".
UBS is still waiting
for formal approval from European antitrust regulators after getting an initial
green light earlier this month. The European Central Bank is also expected to
sign off on the deal after its U.S., British and Swiss counterparts gave their
approval in April, Ermotti said.
Scandal-scarred Credit
Suisse was brought to its knees after clients left in droves amid global
banking sector turmoil. Under a deal hastily engineered by Swiss authorities,
UBS agreed to take it over for 3 billion Swiss francs and to assume up to 5 billion
francs in losses.
UBS said it has not
decided whether it will keep the Credit Suisse domestic business, which earlier
this month Zurich-based finance blog Inside Paradeplatz said UBS was exploring
a possible IPO for.
"I personally and
we believe there is no real issue in terms of oversight presence in
Switzerland," Ermotti said.
"What we need to
do is also to make those decisions based on facts and not emotions. Right now
the discussion is totally based on emotions, in many cases totally
uninformed," he added.
Credit Suisse said on
Monday that 61 billion francs ($68 billion) in assets had left the bank in the first quarter and that outflows
were ongoing, highlighting the challenge for UBS.
"We need
time," Ermotti said in an online video, adding: "Things are going to
be hard".
(This story has been
refiled to correct the spelling of the word 'uninformed' in paragraph 22)
Reporting by Noele
Illien; Editing by Edwina Gibbs
https://www.reuters.com/business/finance/ubs-first-quarter-profit-drops-52-due-legacy-litigation-case-2023-04-25/
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