UBS first-quarter profit slumps 52% on lower revenue and legal provisions

The lender agreed to acquire Credit Suisse in March for about $3.2 billion

Swiss bank UBS said its net income attributable to shareholders for the three months to the end of March slid to $1.03 billion. Reuters

Swiss lender UBS, which took over rival Credit Suisse last month, reported a 52 per cent slump in its first quarter net profit, as revenue fell while legal provisions and net credit loss expenses rose.

Net income attributable to shareholders for the three months to the end of March slid to $1.03 billion, the lender said in a statement on Tuesday.

The quarterly profit was below the $1.71 billion average estimate of 15 analysts polled by the lender.

The lender said profit was dented by an increase in provisions of $665 million related to a US residential mortgage-backed securities litigation matter.

Revenue decreased 7 per cent year on year to $8.74 billion. Its net credit loss expenses also climbed to $38 million, compared with net expenses of $18 million in the first quarter of 2022.

“We are in advanced discussions with the US Department of Justice, and I am pleased that we are making progress toward resolving the legacy matter, which dates back 15 years,” said chief executive Sergio Ermotti, who rejoined the bank last month to oversee the Credit Suisse takeover.

UBS had been an issuer and underwriter of US residential mortgage-backed securities in the five years to 2007. The lender was sued by the US Justice Department in November 2008, seeking penalties for its involvement in mortgage deals. US authorities won the case.

The earnings comes at a tumultuous time for UBS, which was forced to take over troubled rival Credit Suisse in a shotgun merger, engineered by Swiss authorities in March.

Swiss regulators jumped in to ring-fence Credit Suisse, the country's second-largest lender, by ironing out a $3.2 billion deal and paving the way for it to be absorbed by UBS.

The Swiss National Bank agreed to lend UBS up to 100 billion Swiss francs ($108 billion) to help it take over Credit Suisse, while Swiss regulator Finma erased $17 billion worth of Credit Suisse’s bonds and scrapped the need for shareholders to vote on the agreement.

“With the planned acquisition of Credit Suisse, we are taking another transformational step in UBS’s journey, while remaining committed to our culture, strategy and disciplined risk management,” Mr Ermotti said.

UBS estimates that the combined invested assets will total $5 trillion, with the merged lender being twice the size of Switzerland’s economy. The bank expects the transaction to reinforce its position as a leading global wealth manager.

“I am convinced that this transaction will help to reinforce the leading position of the Swiss financial centre and will be of benefit to the entire economy,” he said. “The combined firm presents a unique opportunity to generate significant, long-term value to all of our stakeholders.”

Credit Suisse, which buckled after clients left the lender in droves, earlier this week reported 61.2 billion Swiss francs ($69 billion) of outflows in the first quarter that ended its 167-year history.

On Tuesday, UBS said it maintained a positive momentum and attracted $28 billion in new money from wealthy clients in its global wealth management division, of which $7 billion came in the last 10 days of March, after the announcement of its acquisition of Credit Suisse.

It also recorded $20 billion in net new fee-generating assets in its wealth management business and $14 billion of net new money in its asset management division.

“We delivered these results during a quarter characterised by persistent concerns about interest rates and economic growth exacerbated by questions about the stability of the banking system, especially in the US. Against this backdrop, private and institutional investors' activity remained muted,” UBS said.