Published On : 05/07/2024

UBS shares soar as profit smashes forecasts, share buyback plans affirmed

By Noele Illien

ZURICH (Reuters) – UBS on Tuesday reported first-quarter profit that trounced forecasts and said it was sticking with plans for share buybacks over three years despite Swiss government proposals that would hike its capital requirements.

Shares in Switzerland’s biggest bank jumped 8% and were on track for their biggest one-day gain since March 2023, when authorities orchestrated UBS’s rescue takeover of Credit Suisse.

The bank’s shares have soared nearly 50% since the merger, with investors upbeat about UBS prospects given the low acquisition costs, its huge increase in assets and – so far – its relatively smooth progress in integrating its stricken rival.

The bank’s first-quarter net income, which at $1.8 billion was nearly triple analyst forecasts, marked UBS’ first quarterly profit since taking over Credit Suisse. It was driven by cost-cutting and a boost from ‘non-core’ parts of the business that UBS inherited and wants to exit.

“This is a testament to the strength of our client franchises and progress on our integration plans,” UBS CEO Sergio Ermotti said of the results.

Investors have been watching closely to see what UBS executives would say about returning cash, with buybacks and dividends a main motor behind a Europe-wide rally in bank share prices the past year.

Switzerland’s government recently unveiled plans to increase capital requirements for banks deemed “too big to fail”, raising concerns about whether they would impact UBS’s ability to reward shareholders. UBS executives have said they have major concerns about the plans.

But Ermotti said on Tuesday that the bank was sticking with buyback plans for 2024, 2025 and 2026.

This includes a plan to repurchase up to $1 billion in shares this year as well as increase last year’s dividend of $0.70 per share by a mid-teen percentage in 2024.

NET NEW ASSETS

Pre-provision profits in UBS core businesses came in 10% above expectations, while revenues in asset management and investment banking fell short of forecasts, RBC analysts said.

UBS’ wealth management arm also reported $27 billion in net new assets for the first quarter of the year, compared to $22 billion for the three months prior.

The bank, however, flagged that lower lending and deposit volumes as well as lower interest rates in Switzerland could impact the bank’s wealth management division.

UBS said that it had achieved an additional $1 billion in gross cost savings in the first quarter, taking total savings since the merger to $5 billion. It is aiming to achieve another $1.5 billion in savings by the end of the year.

The historic deal to merge the two global systemically important banks closed last June and was followed by two quarters of losses for UBS as it absorbed Credit Suisse.

The merger of the main parent companies is expected to be legally completed on May 31, and the merger of their Swiss branches in the third quarter.

This year is expected to be a pivotal year for UBS as it tackles some of the trickier stages of integration such as combining separate IT systems and legal entities, migrating clients from Credit Suisse to UBS and cutting the banks’ workforce.

(Reporting by Noele Illien; Additional reporting by Tommy Reggiori Wilkes in London; Editing by Edwina Gibbs)

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