UBS' Q1 Profit Dips 52% due to an Increased Legal Provision

by Arnab Shome
  • The bank sided $665 million for litigation fees.
  • Its wealth management unit added $28 billion in new funds.
UBS

The Swiss banking giant, UBS ended the first quarter of 2023 with a 52 percent annual drop in its profit, primarily due to a provision of $665 million for a US residential mortgage-backed securities litigation matter. The bank's net profit came in at $1.03 billion, which is down from analysts' expectations of $1.75 billion.

A Drop in Revenue and Profit

Revenue for the quarter dropped to $8.75 billion from $9.38 billion a year ago. Investment banking fees decreased 30 percent to $383 million. Trading revenue also took a hit of 17 percent to come in at $1.7 billion due to a decline of 23 percent in the bank's equities unit.

Also, the bank's operating expenses increased to $7.2 billion from $6.6 billion a year ago. The CET1 capital ratio came in at 13.9 percent compared to 14.1 percent a year ago.

On top of that, the Swiss lender revealed that it attracted $28 billion in new finances to its wealth management unit, $7 billion of which were added in the last ten days of March following the announcement of the Credit Suisse takeover. Meanwhile, Credit Suisse lost around $69 billion in customer deposits in the first three months of 2023.

UBS agreed to take over its rival Credit Suisse for CHF 3 billion, which is a deal backed and rushed by the Swiss government to avoid a US-like banking sector crisis. The massive merger is expected to take three years to close.

Moreover, Credit Suisse announced its Q1 results recently, highlighting a pre-tax income of CHF 12.8 billion and a CET1 capital ratio of 20.3 percent. Its revenue declined by 40 percent, and the final adjusted pre-tax loss amounted to CHF 1.3 billion, witnessing an increase of CHF 300 million compared to Q4 2022.

UBS has already spent $70 million on the Credit Suisse acquisition, primarily on advisory fees. Additionally, the bank brought back its former CEO, Sergio Ermotti, to oversee the historic merger.

Market Reaction

The Switzerland-listed share prices of UBS dropped more than 4.33 percent following the announcement of the bank's quarterly results. Credit Suisse shares also dipped more than 3.44 percent, though the two companies' finances are not yet merged. However, the shares of UBS strengthened by 10 percent since the Credit Suisse takeover deal was announced.

UBS share price
UBS share price on Tuesday

Meanwhile, Swiss prosecutors are probing into the merger of UBS and Credit Suisse for possible violation of the country's criminal laws. Additionally, the lawmakers of the lower house of the Swiss parliament recently voted against the government's financial guarantee for the deal, but the voting was rather symbolic.

The Swiss banking giant, UBS ended the first quarter of 2023 with a 52 percent annual drop in its profit, primarily due to a provision of $665 million for a US residential mortgage-backed securities litigation matter. The bank's net profit came in at $1.03 billion, which is down from analysts' expectations of $1.75 billion.

A Drop in Revenue and Profit

Revenue for the quarter dropped to $8.75 billion from $9.38 billion a year ago. Investment banking fees decreased 30 percent to $383 million. Trading revenue also took a hit of 17 percent to come in at $1.7 billion due to a decline of 23 percent in the bank's equities unit.

Also, the bank's operating expenses increased to $7.2 billion from $6.6 billion a year ago. The CET1 capital ratio came in at 13.9 percent compared to 14.1 percent a year ago.

On top of that, the Swiss lender revealed that it attracted $28 billion in new finances to its wealth management unit, $7 billion of which were added in the last ten days of March following the announcement of the Credit Suisse takeover. Meanwhile, Credit Suisse lost around $69 billion in customer deposits in the first three months of 2023.

UBS agreed to take over its rival Credit Suisse for CHF 3 billion, which is a deal backed and rushed by the Swiss government to avoid a US-like banking sector crisis. The massive merger is expected to take three years to close.

Moreover, Credit Suisse announced its Q1 results recently, highlighting a pre-tax income of CHF 12.8 billion and a CET1 capital ratio of 20.3 percent. Its revenue declined by 40 percent, and the final adjusted pre-tax loss amounted to CHF 1.3 billion, witnessing an increase of CHF 300 million compared to Q4 2022.

UBS has already spent $70 million on the Credit Suisse acquisition, primarily on advisory fees. Additionally, the bank brought back its former CEO, Sergio Ermotti, to oversee the historic merger.

Market Reaction

The Switzerland-listed share prices of UBS dropped more than 4.33 percent following the announcement of the bank's quarterly results. Credit Suisse shares also dipped more than 3.44 percent, though the two companies' finances are not yet merged. However, the shares of UBS strengthened by 10 percent since the Credit Suisse takeover deal was announced.

UBS share price
UBS share price on Tuesday

Meanwhile, Swiss prosecutors are probing into the merger of UBS and Credit Suisse for possible violation of the country's criminal laws. Additionally, the lawmakers of the lower house of the Swiss parliament recently voted against the government's financial guarantee for the deal, but the voting was rather symbolic.

About the Author: Arnab Shome
Arnab Shome
  • 6306 Articles
  • 80 Followers
About the Author: Arnab Shome
Arnab is an electronics engineer-turned-financial editor. He entered the industry covering the cryptocurrency market for Finance Magnates and later expanded his reach to forex as well. He is passionate about the changing regulatory landscape on financial markets and keenly follows the disruptions in the industry with new-age technologies.
  • 6306 Articles
  • 80 Followers

More from the Author

Institutional FX

!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|} !"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}