UBS Blows Past Profit Expectations After Buying Credit Suisse

UBS (UBS) shares jumped more than 5% in early trading Thursday after the Swiss banking giant posted second-quarter earnings that blew past analysts' expectations after its acquisition of ailing rival Credit Suisse. The company also announced massive cost cutting plans, that may include laying off thousands of workers in Switzerland alone.

Profit of $28.88 billion came in more than double analysts' expectations of $12.8 billion, mostly reflecting negative goodwill from UBS's purchase of Credit Suisse at a discount. UBS's Common Equity Tier 1 (CET1) capital ratio, a key metric that assesses whether a bank has enough capital to weather a downturn, improved to 14.4% from 14.2% in the year-ago quarter.

Unlike goodwill, which accrues when one company acquires another at a premium to fair market value, negative goodwill typically accrues when one company buys another—usually a financially distressed company—at a discount. Negative goodwill always benefits the buyer, and signals that the company being acquired had no other option but to unload its assets at a discount to avoid imminent bankruptcy.

The Swiss bank shed 3,000 jobs, or roughly 8% of its workforce, as part of a broader cost-cutting effort designed to reduce costs by $10 billion in the aftermath of its purchase of Credit Suisse earlier this year.

Acquisition of Credit Suisse

On June 12, UBS completed its acquisition of longtime rival Credit Suisse, which was announced on March 19 as part of a 3 billion franc ($3.3 billion) deal brokered by the Swiss government. At the time, Credit Suisse was Switzerland's second-biggest bank, with assets under management (AUM) of 1.294 trillion francs ($1.4 trillion) at the end of 2022. The bank had been plagued for years by scandal and financial woes, and was taken over during this year's banking crisis as part of a government effort to prevent contagion throughout the financial system.

UBS and Credit Suisse will operate separately until their planned legal merger in 2024, while the Credit Suisse brand and logo will not be retired until 2025, when the migration of the bank's clients to UBS's database is expected to be complete.

Once complete, the merger will create a $5 trillion wealth management business, extend UBS's lead in its home market, and strengthen its position as Switzerland's biggest financial institution.

"Our analysis clearly shows that full integration is the best outcome for UBS, our stakeholders and the Swiss economy," said UBS Group CEO Sergio Ermotti.

UBS shares are up 43% so far this year, far outperforming the broader S&P 500 banking sector, which is down 9% over the same period.