Swiss bank UBS smashes third-quarter expectations with $1.4 billion in profit

• Net profit attributable to shareholders came in at $1.43 billion, compared with a mean forecast of $667.5 million in a LSEG poll of analysts.
• UBS turned course back toward profit in the first quarter of 2024 after two quarterly losses tied to the takeover of stricken Credit Suisse.

Swiss banking titan UBS on Wednesday posted a large profit beat, after completing its first wave of client migrations following its integration of collapsed domestic rival Credit Suisse.

Net profit attributable to shareholders came in at $1.43 billion, compared with a mean forecast of $667.5 million in a LSEG poll of analysts.

Group revenue was $12.33 billion, above analyst expectations near $11.78 billion.
Other third-quarter highlights included:

• Operating profit before tax of $1.93 billion, up from a loss of 184 million in the same quarter last year.
• Return on tangible equity hit 7.3%, compared with 5.9% over the second quarter.
• CET 1 capital ratio, a measure of bank solvency, was 14.3%, down from 14.9% in the second quarter.

The lender said it expects to complete its planned $1 billion share buyback program in the fourth quarter and intends to continue repurchases in 2025.

UBS shares fell from gains in the morning to close 4.5% lower.

"We started to see the benefits of our diversified business model, our global reach," CEO Sergio Ermotti told CNBC's Annette Weisbach on Wednesday of the bank's forecast-beating third-quarter results. "We are also [in] a market environment that was challenging but also offered opportunities for investors to position themselves. So I think it's a good mix of factors."

UBS' Investment Banking division shone in the third quarter, with the branch's net income up 36% year-on-year, largely due to performance in equity derivatives, foreign exchange and rate revenues. The bank also noted an increase in Global Banking.

Global Wealth Management, meanwhile, shed 6% year-over-year, as a result of lower deposit margins and weaker loan revenues, following softer average volumes.

UBS turned course back toward profit in the first quarter of 2024 after two quarterly losses tied to the takeover of stricken Credit Suisse — an intensive, now completed process mired in OECD warnings over "new risks and challenges" posed to the broader Swiss economy and governmental concerns about the capital requirements of the resulting banking juggernaut. UBS defends it is not "too big to fail."

The banks' union has spurred UBS to trim expenses, with the banking giant saying in its second-quarter earnings release that it anticipated ending 2024 with cumulative gross savings from the Credit Suisse deal of $7 billion, out of a $13 billion target by 2026. The figures compare with a 2022 baseline.

UBS still faces the lofty tasks of integrating its IT system with that of Credit Suisse, along with migrating clients — with the latter transition set to take around 18 months, Reuters reported earlier this month. The bank on Wednesday said that in October it completed the migration of its Global Wealth Management client accounts in Luxembourg and Hong Kong to UBS platforms and intends to transfer over Global Wealth Management client accounts booked in Singapore and Japan by the end of the year.

Next steps

A year and a half since UBS' strong-armed merger with Credit Suisse, the onus is now on Ermotti to set the bank's trajectory against a landscape shaped by geopolitical volatility, declines in interest rates and pressure to keep pace with the double-digit profit growth of U.S. adversaries, such as Goldman Sachs and Morgan Stanley. Domestically, UBS operates in the confines of an economy defined by a robust Swiss franc and plunging annual inflation that slipped to just 0.8% in September, raising questions over further monetary policy easing from the Swiss National Bank — and the impact of such interventions on the profitability of commercial lenders.

Asked on the extent of the impact of interest rate declines on UBS' upcoming performance, Ermotti told CNBC: "Very little. So, I mean, relatively simple, definitely with other banks and banking models, we have only 20% of our revenues are coming from net interest incomes."

He added, "Actually when we see interest rates coming down, we see clients in some cases taking on more leverage ... so I think that we have almost an offsetting factor. Having said that, lower rates in the foreseeable future will have still a little bit of an impact on our profits, but it will be offset by, as I said, transaction volumes and fee-based businesses.

The UBS boss nevertheless stressed ongoing volatility in the fourth-quarter's horizon when it comes to broader global markets.

"The outlook for the fourth quarter is clearly still somehow influenced by the uncertainties we see on the macroeconomic and geopolitical front, we have the upcoming elections in the U.S., which of course is not going to be an uneventful event," he said.

"The outlook is positive (continued strong client activity)," Vontobel analysts said in a note, stressing that the lender's third-quarter results beat forecasts on higher-than-expected revenues across all operating divisions.

"The migration of data of 1.3 mn clients poses the next big challenge. However, the first wave of client account migrations has been completed successfully and the bank has (so far) been ahead of schedule on issues it can control."

RBC analysts qualified the UBS results as "strong," but noted ongoing uncertainties emerging from the bank's potential too-big-to-fail status and support from "good earnings momentum and execution of the merger synergies.

The UBS results come after the profit beat of Germany's largest lender Deutsche Bank last Wednesday and join this week's spate of third-quarter reports from European lenders, including from BNP Paribas and Santander.

— CNBC's Ganesh Rao contributed to this report.