UBS Set to Reveal Post-Merger Earnings Report

 UBS Set to Reveal Post-Merger Earnings Report

UBS Set to Reveal Post-Merger Earnings Report(Image-Getty)

UBS (UBSG.S) is poised to release its inaugural earnings report on August 31 following the rapid acquisition of its Swiss counterpart, Credit Suisse, shedding light on the repercussions of the deal and the inner mechanisms of the newly formed banking powerhouse.

In addition to its second quarter financials, which were delayed due to the intricacies of the merger, investors will closely examine any supplementary information for insights into the unfolding narrative of the largest banking rescue since the global financial crisis.

Here's a breakdown of what investors and analysts are keenly watching for on Thursday:

1. Assessment of Credit Suisse's Damage:

 UBS's report will include a distinct breakdown for Credit Suisse, offering a more intricate overview of the issues it has now inherited. This disclosure will provide insight into the extent of damage to Credit Suisse's reputation among customers, particularly its beleaguered wealth management division, following the swift rescue orchestrated over a weekend in March by Swiss authorities. With Credit Suisse already signaling an anticipated substantial loss for 2023, the report will underscore the persistent erosion of customer trust, as evidenced by ongoing outflows even after the rescue, further diminishing the subsidiary's managed assets from 500 billion francs as of March's end.

2. Client Exodus from UBS?

 In previous periods, affluent clients often maintained accounts with both UBS and Credit Suisse to diversify risk. However, with the merger, this pattern might change, as some clients opt to relocate some of their funds to mitigate risks. While UBS had experienced noteworthy inflows in earlier quarters due to Credit Suisse clients seeking safer havens, analysts predict this trend might reverse post-merger. Analyst Benjamin Goy from Deutsche Bank anticipates potential outflows of up to 100 billion Swiss francs over time, and the upcoming results will indicate if this shift has indeed commenced.

3. Future of Credit Suisse's Swiss Arm:

 A closely monitored aspect is UBS's strategy concerning Credit Suisse's "crown jewel" – its Swiss arm. UBS's CEO Sergio Ermotti has committed to a decision by summer's end, with many anticipating an announcement this week. Options include spinning off, floating, or fully integrating the Swiss business, the latter of which Ermotti deems likely but which has faced opposition within Switzerland's political circles. Despite political pressure, UBS's declaration of not utilizing government financial guarantees for the deal may provide some leeway.

4. Implications of Job Reductions:

 UBS's acquisition announcement mentioned anticipated cost savings of over $8 billion, with a significant portion stemming from staff reductions. Analysts foresee UBS trimming approximately a third of the combined workforce, translating to 30,000-35,000 jobs. An integration of Credit Suisse's domestic arm could impact up to 10,000 jobs in Switzerland alone. Thursday's results will unveil the extent of Credit Suisse's headcount reduction – which stood at 48,000 by March's conclusion. While voluntary departures have dominated, impending waves of layoffs are expected.

5. Oversized Profit Figures:

 Analysts project UBS to report a net profit of $33.45 billion for Q2, as per a Swiss bank poll. However, this substantial figure largely results from UBS's acquisition of Credit Suisse at a fraction of its value – a one-off event. Analysts dismiss it as a distortion caused by the intricate merger. Instead, they focus on gauging the restructuring program's dimensions, swiftness, and scope.

6. Non-Core Unit Details:

Further insights into the non-core unit – encompassing undesired Credit Suisse assets like loans, legacy holdings, and structured products – are anticipated from UBS. Analysts seek clarity on the portfolio's size, estimated timeline for winding down, and associated costs, as little information is currently available.