UBS Group AG yesterday said that it would likely complete its takeover of stricken rival Credit Suisse Group AG in the second quarter, as the bank posted an underwhelming first-quarter net profit of US$1 billion, down from US$2.1 billion a year earlier.
Net income for the first quarter was reduced by an increase in litigation provisions of US$665 million to settle an old dispute linked to the subprime crisis in the US.
The bank said it was in advanced discussions with the US Department of Justice and reported progress toward settling the case.
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UBS said it saw a net inflow of new money into its global wealth management division of US$28 billion, of which US$7 billion came in the last 10 days of last month, following the takeover announcement.
On Monday, Credit Suisse said that 61.2 billion Swiss francs (US$69 billion) had been withdrawn from the bank in the first three months of the year, following on the heels of SF110.5 billion in withdrawals in the fourth quarter last year.
Most of the withdrawals were made in panic around the March 19 announcement that UBS had been strongarmed by Swiss authorities into a US$3.25 billion shotgun marriage to ensure its smaller, but still “too-big-to-fail” rival, did not go bankrupt.
“We are focused on completing the acquisition of Credit Suisse, most likely in the second quarter of 2023,” UBS said.
“While acknowledging the magnitude of, and complexity associated with, the integration and restructuring of Credit Suisse, we believe that this combination presents a unique opportunity to bring significant, long-term value to all of our stakeholders,” it said.
Returning chief executive Sergio Ermotti said the transaction would help to “reinforce the leading position of the Swiss financial center and will be of benefit to the entire economy.”
Vontobel AG analyst Andreas Venditti said UBS client activity levels could be subdued in the second quarter, though net interest income was likely to be up year-on-year.
“UBS’ investment case has changed, from a capital-generative firm with high returns of capital to shareholders, to a complex restructuring story. At least, UBS has secured a reasonable price and significant loss protections,” he said.
UBS has created a special risk management post focused exclusively on the merger and on Monday said that its current head of overall risk management would prolong his mandate to help usher through the extremely delicate operation.
Ermotti yesterday said the lender’s share buyback plans are temporarily suspended and not canceled, as it grapples with the huge integration of Credit Suisse.
It is still too early to say when buybacks will resume, and UBS needs more visibility on the numbers and plans related to the deal, he said in a Bloomberg TV interview.
“We are reiterating our intention to have a progressive cash dividend increase every year and we definitely have an intention to resume share buybacks when its appropriate,” Ermotti said.
The solidity of the balance sheet and liquidity are critical in its considerations for resuming buybacks, he said.
Additional reporting by Bloomberg
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