UBS Group set aside more money to draw a line under its involvement in toxic mortgages, dealing a heavy blow to a first-quarter profit as it prepares to integrate fallen rival Credit Suisse.
Switzerland’s biggest bank reported a 52 percent slide in quarterly profit, having set aside a further US$665 million to cover the costs of the US residential mortgage-backed securities that played a central role in the global financial crisis.
“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 has newly rejoined the bank to steer the takeover.
Net profit attributable to shareholders came in at US$1 billion, versus the US$1.7 billion average of 15 analyst estimates in a UBS-conducted poll.
The world’s largest wealth manager also reported inflows of US$42 billion in the first three months of the year. Its flagship wealth management division received US$28 billion in net new money, US$7 billion of which came in the last ten days of March.
In its annual report last year, UBS described how it had been an issuer and underwriter of US residential mortgage-backed securities in the five years to 2007.
In November 2018, US authorities commenced legal action against the Swiss bank, seeking penalties for its involvement in scores of such deals. UBS subsequently lost a court case on the matter.
UBS also said on Tuesday it would likely complete its takeover of stricken rival Credit Suisse in the second quarter.
“We are focused on completing the acquisition of Credit Suisse, most likely in the second quarter of 2023,” Switzerland’s biggest bank said in a statement on its first quarter results, adding: “This combination presents a unique opportunity to bring significant, long-term value to all of our stakeholders.”
Scandal-plagued Credit Suisse had been brought to its knees after clients left in droves amid global banking sector turmoil. Under the deal hastily engineered by Swiss authorities, UBS agreed to take it over for 3 billion Swiss francs (US$3.4 billion) and to assume up to 5 billion francs in losses.
Credit Suisse said on Monday that US$68 billion in assets had left the bank in the first quarter and that outflows were continuing, underscoring the challenge faced by UBS.
During the global financial crisis, it was UBS, not Credit Suisse, that took the lion’s share of support from the state.
At that time, the Swiss central bank lent more than U$54 billion to a vehicle that UBS used to offload problem debt, including subprime loans.
Source: Agencies
