UBS's third-quarter numbers were mostly above expectations. But that doesn't mean smooth sailing from here on out. Investors will have to wait until next February to find out about dividends and buybacks.
UBS chief executive officer Sergio Ermotti has a crystal clear idea about the priorities when it comes to the rescue of Credit Suisse. Stabilize first, then restructure – and then think about growth and expansion.
UBS made significant progress when it came to the first two during the release of third-quarter results Tuesday. In fact, some of the outcomes may have materialized quicker than originally expected. The bank managed to post a decent adjusted profit result when the expectations were for a breakeven result.
Nothing Linear
That doesn't mean that everything will continue to go just as fast or that it will lead to a better result. The uncertainties are just too large and a range of possible developments could derail everything.
In his outlook, Ermotti discussed the changed macroeconomic environment and geopolitical tension. That could have an influence on client behavior and lead to changes in demand.
No Final Plans
«We are working on finalizing the three-year plan», Ermotti indicated. This is expected to be disclosed with the annual results in February 2024. No statements on dividends or share buybacks will be made until it is over. «We intend to keep to a progressive dividend policy», the CEO said.
One of the reasons the bank posted a net loss attributable to shareholders in the quarter was due to the high tax rate. Given the merger hasn't been completed in a number of important countries, profits in certain units can't be used to compensate for losses in others.
Dependent on Integration
That is why the bank is reckoning with a high tax rate in coming quarters as chief financial officer Todd Tuckner maintained. «That will only change when the entities are fully merged in various countries.» The bank expects that to happen next year. He said the most important countries for that to happen were Switzerland, the US, the UK, and certain countries in Asia.
The trend in net new money shouldn't be extrapolated as a done deal for the foreseeable future. Getting clients who had become skittish about Credit Suisse is one thing. Impressing new clients about the opportunities of a merged bank is another.
The tempo related to the planned cost cuts could accelerate or decelerate from quarter to quarter. That has to be looked at in the context of the 4,000 job cuts in the third quarter. When it comes to structural costs such as for IT or premises, the future could bring fluctuations either way.
RWA Cutting
Ermotti emphasized that the objective of the non-core and legacy business was reducing expenses. They managed to do that actively in the third quarter but that doesn't mean they will be able to continue doing so. The natural run-down would help the level of both risk-weighted assets and costs.
Everything considered, Ermotti was clearly positive about the third quarter. UBS managed to regain the trust of clients and managed to increase its level of profitability.
Shares Up
The investors were receptive to the third quarter disclosure on Tuesday, pushing the share price up at times by almost 5 percent to 22.98 francs ($25.52) in early trading. In the afternoon, they were still up 3.5 percent at 22.65 francs.
