UBS reports its best quarter in fifteen years while Credit Suisse's business is half the size it was a year ago. A bitter rivalry takes an unexpected twist.
There was only one day between the first-quarter reports of Switzerland's two largest banks. But they were light-years apart.
UBS, which reported on Tuesday, blew its financial targets out of the water - just a month after they were revised. Credit Suisse posted another significant loss, much of which was due to the high levels of legal provisions. Still, revenues fell to almost half their levels a year ago.
Record Lows in Sight
The gap that started to open up last year has now reached an entirely new dimension. And Credit Suisse's share price reflects that. On Wednesday, its shares were at 6.48 Swiss francs, near its all-time low of 6.16 francs. They are now down by a third in the space of twelve months.
UBS has also trailed the SMI, the Swiss blue-chip index, this year. But the shares are still up by about 15 percent from a year ago. And the bank was also in a comfortable position to buy back $1.7 billion of its own shares.
Right to the Bottom
Investors who have been through a crash know that if you follow prices right to the bottom that you need a doubling of performance afterward to recover your losses.
That scenario is becoming increasingly likely with Credit Suisse. Because of its debacles, all largely of its own making, it was not able to take advantage of what was an extremely lucrative year in 2021 for the finance industry. Its operating business has been stumbling since the fourth quarter of last year. That will only make 2022 that much more difficult for them, a year that will be marked by the Ukraine War and the sharp turnaround in interest rates in many financial markets.
Muted Transition Year
The current outlook for this «transition year», as Credit Suisse chief executive officer Thomas Gottstein formulated it, was extremely muted on Wednesday. Both its wealth management and investment banking business are dependent on market conditions and client activity levels and the bank's reduced risk appetite and it expects «these market conditions to persist in the coming months».
UBS, on the other hand, felt comfortable enough by refraining entirely from a market outlook. Instead, it decided to concentrate on chief executive Ralph Hamer's vision to convene «THE» global ecosystem for investing. UBS is in a good place. It can count itself as one of the European banks, like Deutsche Bank and Spain's Santander, that reaped the full benefit of a record year and are prepared for the potential storms brewing in the financial markets.
Going Backwards with the Handbrake on
Credit Suisse is still working on trying to clean up legacy problems. «De-risking» took a great deal out of it in the first quarter. The level of risk-weighted assets was down by 20 percent. The picture you get is of a bank going in reverse with the handbrake on. After all, the Swiss regulator, Finma, has kept its risks constrained in a tight corset.
Sharp Turnaround
It is unclear how Switzerland's second-largest bank is going to recover quickly from all this. The bank does not seem to be planning for any major strategic steps. But, at the same time, many observers have mentioned that it is always good for a quick, unexpected, turnaround. Many remember the attempt in 2015 to list the Swiss business publicly.
As finews.com has analyzed at various points, a stronger focus on the domestic market looks ideal, even for investors. Merging with a competitor would be extremely complex and have far-reaching consequences. There is even the question as to how that would be received in Switzerland. UBS head Hamers apparently mentioned in a small circle once that the country had to be very clear as to whether it wanted a national banking champion or not.
Another 1.4 Billion in Provisions?
Credit Suisse must look toxic right now to any potential partners. In its quarterly report, it warned that it may need to raise its level of legal provisions on top of the 703 million it has already booked. It added that it estimated the losses could be anywhere from «zero to 1.4 billion».
Given the bank's history, it is unlikely that many will give them the benefit of the doubt as to whether the number is closer to zero or not.