UBS Group AG on Tuesday reported stronger-than-expected client inflows in its wealth management business, boosted by the first signs of stabilization at Credit Suisse as it carries out an expensive and complex integration of its former rival.
The unit saw net new money of $22 billion in the third quarter, compared with an estimate of $14 billion. About $3 billion of that was at Credit Suisse's wealth arm, its first positive client flows in a year and a half.
The Zurich-based bank posted a net loss of $785 million for the three months to September, its first quarterly loss in almost six years, as costs to absorb Credit Suisse came in at $2 billion. A further $1 billion of charges are expected to come in the fourth quarter.
UBS Chief Executive Officer Sergio Ermotti is seeking to chart a path through the biggest merger in finance in decades, readying the combined bank for a strategic revamp due to be announced in February. The bank's shares have gained by about 30% this year as investors back Ermotti's plan to integrate Credit Suisse's profitable businesses while winding down the rest.
The bank is in "full execution mode" around the integration, Ermotti said on a call with analysts.
UBS shares were up 3.6% at 11:10 a.m in Zurich.
Profit at the asset management unit came in lower than expected. UBS said ongoing uncertainty over the economic outlook, including central-bank rate increases and geopolitical tensions, may affect wealth management clients' willingness to conduct transactions in the fourth quarter.
Investment Bank
UBS reported an increase in investment banking revenues of 36% compared to the same period last year, driven by fees from mergers & acquisitions and leveraged capital markets. In trading, UBS's revenues for equities decreased 3% from the prior year reflecting a difficult market that contributed to mixed results across Wall Street banks.
For its smaller fixed income, rates and currency trading business, UBS's revenues were down 37% from the prior year, faring much worse than U.S. trading houses.
UBS has signaled it will shutter roughly two-thirds of Credit Suisse's investment bank as it absorbs its former rival, including almost all its trading operations as part of plans to exit businesses that don't fit with its existing strategy.
UBS said it accelerated the wind-down of assets inherited from Credit Suisse that it doesn't want to continue, reducing risk-weighted assets by $6.4 billion in the quarter.
The Swiss bank has said it will give an update on its share buyback program in February, around the same time as full-year results.
$500 million in retention packages
On costs, UBS said it had already met its goal for this year of reducing expenses by some $3 billion. Personnel costs jumped, however, as UBS has been forking out hundreds of millions of dollars to keep Credit Suisse staff. Many have left anyway.
Credit Suisse has lost about 500 client advisors over the past 12 months, resulting in the loss of $20 billion of client assets, Ermotti said. The departures, some of which happened only recently, will cause further outflows, although they won't be "multiples" of what has already been lost, he said.
Motivating crucial employees to stay on became a major challenge soon after the Credit Suisse emergency takeover was unveiled in March as competitors stepped up efforts to poach staff uncertain of their future. UBS responded by reaching out to Credit Suisse employees it wanted to keep, with wealth boss Iqbal Khan touring places such as Asia to deliver the message, Bloomberg reported at the time.
UBS offered about $500 million in retention packages to Credit Suisse staff during the period between the deal announcement in March and its close in June, according to its quarterly report, which was also published on Tuesday.
The packages offered to Credit Suisse staff ahead of the deal close resulted in $219 million in costs in the third quarter, according to the report. Retention awards contributed to $1.0 billion in "integration-related" personnel costs during the period.
The money was "offered to selected employees of the Credit Suisse Group prior to the acquisition date to support the completion of the transaction and the early phase of integration," UBS said in the report.
At the same time, Ermotti is seeking to cut the combined workforce as a way to slash costs. Managed headcount dropped by more than 4,000 in the third quarter and is down by about 13,000 against the total figure the two banks would have had as a combined entity at the end of last year, according to the report.
Total headcount was 116,000 at the end of September, compared with 72,600 for UBS alone at the end of 2022.
