Switzerland's largest bank made new provisions for an old legal case, which impacted first-quarter earnings. UBS was nearly mute on the planned acquisition and integration of Credit Suisse.

UBS presented an unpleasant surprise in its first quarter results on Tuesday by reporting that it has made new provisions of $665 million in connection with a long-running dispute over mortgage-backed debt securities (RMBS) in the United States.

Talks to resolve the 15-year-old legal deal dating back to the 2008 financial crisis with the US Department of Justice (DOJ) are well advanced, the bank's new CEO Sergio Ermotti said in the statement, with an agreement said to be imminent. Furthermore, the bank has taken credit risk provisions for $38 million.

Provisions Hurt Profit

The provision hurt UBS's quarterly results, with net profit attributable to shareholders halved year-on-year to $1.029 billion, while pre-tax profit fell 45 percent to $1.495 billion. Excluding RMBS provisions, pre-tax profit would have fallen by as much as 21 percent, the statement added. Total income was down 7 percent. The consensus in an «AWP» survey of analysts expected a first-quarter net income of $1.69 billion.

Due to the special charge, the cost-income ratio (CIR) deteriorated to 82.5 percent, outside of the bank's target of 70 to 73 percent.

On the volume side, UBS noted strong inflows, which the institution took as confidence in its stability. The core global wealth management (GWM) business generated $28 billion in net new assets, with total funds invested at the bank of $4.16 trillion, down from $4.38 trillion a year earlier.

Acquisition Done by Summer

The bank was largely mum on news of its planned takeover of Credit Suisse which is unlikely to please UBS shareholders at the start of the trading session. The March 19 merger resulting from pressure from the supervisory authorities and the Swiss government, raises several urgent questions. With today's announcement, UBS is not out of the weeds just yet.

On the timeline for the takeover's completion, Ermotti merely stated the transaction should be completed in the second quarter. The takeover of Credit Suisse is expected to expand the management business to $5 trillion of assets under management, firm up its position as a Swiss universal bank, and expand its expertise in investment banking and the fund business. Investment banking is to account for no more than 25 percent of risk-weighted assets on the balance sheet, a target that was also already known.

Communication From the Boss

«While acknowledging the magnitude of, and complexity associated with, the integration and restructuring of Credit Suisse, we believe that this combination presents a unique opportunity to bring significant, long-term value to all of our stakeholders,» the bank said in the statement. More details are expected from Ermotti later in the day when he faces analysts and the media.