- Problem debt dates back 15 years to financial crash
- UBS sets aside $665 million to cover costs
- CEO warns of ‘difficult’ task of integrating Credit Suisse
ZURICH, April 25 (Reuters) – UBS Group (UBSG.S) has set aside more money to draw a line under its involvement in toxic mortgages, halving its first-quarter profit as it preparing to swallow fallen rival Credit Suisse (CSGN.S).
Chief executive Sergio Ermotti, back in the saddle to lead the takeover, also said ‘difficult’ economic conditions had dampened the mood of the bank’s customers and warned of difficulties ahead as it falters. embarks on an integration process that could take four years.
“We need time,” he said in an online video. “Things are going to be difficult.
UBS shares opened down 4.6%.
The attempt by Switzerland’s largest bank to wipe the slate clean of problems dating back to the global financial crisis underscores its vulnerability as it undertakes the Herculean task of absorbing Credit Suisse – whose long list of challenges includes managing a backlash against the house agreement.
UBS said concerns about the banking sector around the world persisted and client activity “could remain subdued in the second quarter”, adding however that a rise in interest rates would bolster lending income.
It reported a 52% decline in quarterly revenue, after it made additional provisions of $665 million to cover litigation costs related to US residential mortgage-backed securities that have played a central role in the global financial crisis.
Net income attributable to shareholders was $1 billion, below the consensus average of $1.7 billion in a UBS survey.
But the world’s largest wealth manager also reported strong inflows, some $42 billion.
Its flagship wealth management division received $28 billion in net new money, a quarter of it in the last ten days of March after the announcement of the Credit Suisse takeover.
It reported a slight decline in pretax profit and year-over-year revenue for the division. He said there had been an increase in deposit income as a result of higher interest rates, but at the same time some customers had shifted to lower-margin products.
OLD TOXIC DEBT
UBS was an issuer and underwriter of US residential mortgage-backed securities in the five years to 2007, according to its annual report last year.
In November 2018, US authorities filed a lawsuit against the Swiss bank, seeking sanctions for its involvement in numerous such transactions. UBS later lost a lawsuit over it.
“We are in advanced talks with the U.S. Department of Justice, and I’m pleased we’re making progress toward resolving the 15-year-old legacy case,” Ermotti said.
Investment banking revenue fell 19% year-on-year, in line with expectations, and the division’s pre-tax profit fell 49%.
UBS said it expects the Credit Suisse takeover to close in the second quarter.
Scandal-ridden Credit Suisse has been brought to its knees after the mass departure of clients amid turmoil in the global banking sector. As part of the deal hastily struck by the Swiss authorities, UBS agreed to take it over for 3 billion Swiss francs and take up to 5 billion francs in losses.
Credit Suisse said Monday that 61 billion francs ($68 billion) of assets left the bank in the first quarter and outflows were continuing, underscoring the challenge facing UBS.
Reporting by Noele Illien; Editing by Edwina Gibbs
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