UBS Group AG will buy back up to US$1 billion ($1.35 billion) in shares this year, as the bank seeks to keep investors focused on the upside of its complex integration of Credit Suisse.
The Zurich-based bank said the repurchase program will commence following the legal merger of the two banks, which is scheduled for the second quarter. Expenses related to the integration in the final three months of 2023 helped push the bank to its second-straight quarterly loss.
Shares fell after the bank posted results on Tuesday, trading down as much as 3.4%. Pre-tax profit at the key wealth management unit came in well below estimates, and the investment bank posted its third loss in a row.
Chief Executive Officer Sergio Ermotti has warned that 2024 will be more difficult, as the costs from the takeover of its former rival weigh on results before UBS can realize the benefits. The bank is vying for primacy in global wealth management, seeking to boost its valuation to a par with US rivals including Morgan Stanley.
“One thing we need to do is be willing to sacrifice a little bit of topline growth in order to improve the returns of our financial resources,” Ermotti said in an interview on Bloomberg TV on Tuesday. “2024 will be a ‘pivotal year,’” Ermotti said.
On Tuesday, the bank confirmed its profitability target through 2026 and increased the amount of planned cost savings to US$13 billion from about US$10 billion previously. Chief Financial Officer Todd Tuckner said that while total integration expenses will remain elevated this year, by the end of 2024 around two thirds of the anticipated costs will have been booked.
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Shares traded down 2.4% as of 25.07 Swiss francs ($38.61) at 12.25 pm in Zurich.
UBS posted a net loss of US$279 million for the three months to December, worse than analysts estimated. The key wealth management unit saw pre-tax profit of US$381 million, below analyst estimates for US$1.07 billion. Net new money at the unit came to US$21.8 billion, better than forecast.
While investors are likely to be buoyed by the resumption of the buyback, frozen since it announced the government-backed takeover of its local rival last year, some analysts voiced disappointment with the profitability targets.
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The long-term return on capital target was placed at 18%, while the 2026 goal and the cost-to-income ratio were left unchanged.
| Metric | Value | Deadline |
|---|---|---|
| RoCET1 | ~15% | End 2026 |
| RoCET1 | ~18% | In 2028 |
| Cost reductions | ~US$13b | End 2026 |
| Cost-income ratio | < 70% | End 2026 |
| GWM invested assets | > US$5t | By 2028 |
| GWM net new assets | ~US$100b/year | Through 2025 |
| Buybacks | > pre-acquisition level | By 2026 |
“At the very least, we had hoped for an acceleration in the speed to which it would be achieved,” analysts at KBW including Thomas Hallett wrote in a note. “The 18% target is many, many years away, with significant risks in between. We do not believe this is enough.”
Cevian Capital AB announced it had built up a stake of about 1.3% in December and said that it thinks the bank can achieve a return of more than 20% on tangible equity once the integration is complete. In January, Chairman Colm Kelleher signaled that the bank could exceed its stated 15% target.
UBS is seeking to manage costs while shrinking parts of the inherited businesses that it doesn’t want to keep. That affects Credit Suisse’s investment bank most directly, with UBS planning to shrink it by about two thirds.
The combined investment bank posted a pre-tax loss of US$169 million in the third quarter, with higher underlying revenues driven by the global banking division. The bank signaled that the unit should return to profitability this quarter.
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As part of the takeover deal, UBS received a government guarantee on losses related to certain Credit Suisse assets as well as liquidity support. The exiting of that guarantee arrangement will help reduce funding costs by about US$550 million per quarter, the bank said.
Looking forward, UBS said it expects higher client activity levels this quarter, and overall a “substantial sequential improvement in reported net profit.”
US Strategy
UBS is already the undisputed top wealth manager in many parts of the world. Yet a challenge to Wall Street peers, and a sustained boost to its valuation, would require growth in the US, the largest market for wealth management services. Ermotti has signalled that the US will be a major plank of the growth strategy.
The CEO gave more details on that plan on Tuesday. The bank will seek to offer more of its global investment offering to US clients, and enable more global customers to book their investments in the US.
“A lot of our global clients want to be also booked in the US; and this is the real opportunity,” he said. “So we believe that by doing that we will be able to narrow the gap with our competitors and setting the base for the next phase of growth.”
