UBS not rushing to offload Credit Suisse noncore assets — CEO

UBS Group AG is not in a hurry to wind down the noncore and legacy operations of recently-acquired Credit Suisse Group AG as it aims for "creating value, not just headlines," group CEO Sergio Ermotti said Nov. 7.

Unwinding positions too quickly would affect UBS' capital accretion and its ability to return capital to shareholders, Ermotti said during a third-quarter earnings call with analysts.

UBS agreed to a government-brokered merger with Credit Suisse in March and has since been focused on overhauling and stabilizing the business of its troubled peer. The group aims to complete Credit Suisse's restructuring in 2026, when it expects to see synergies from the deal. UBS will present a three-year restructuring plan in February, Ermotti said.

Risky assets cut

UBS cut $6 billion of risk-weighted assets (RWAs) in the noncore and legacy portfolio over the third quarter, with 80% of the reduction driven by actively unwinding positions, the CEO said.

The lender expects total noncore and legacy RWAs to nearly halve to $39 billion by the end of 2026, from $77 billion as of Sept. 30. It will not aim at a higher rate of reduction, of 75% or even 100% in the noncore portfolio, as this would destroy "a lot of value," Ermotti said.

"Objective number one around noncore is not necessarily just to accelerate the winddown of the assets, but to take down cost [which] is a much more critical element of freeing up capacity and resources," Ermotti said.

Credit Suisse integration expenses dragged UBS' to a third-quarter net loss of $785 million, its first negative result since the fourth quarter of 2017, S&P Global Market Intelligence data shows. The bulk of the costs was booked at noncore and legacy operations, according to bank filings.

No 'blue-sky scenarios'

UBS aims to cut gross costs by about $10 billion by the end of 2026 and has yet to estimate where revenue would land after the Credit Suisse integration is complete. The integration would take priority over growth ambitions for the foreseeable future, Ermotti said.

"Before we talk about growth of the top line, we need to restructure and reset the basis. In that sense, we are not counting on blue-sky scenarios," the UBS CEO said, replying to an analyst question about expected group revenue of more than $50 billion in 2026. This is not a figure the bank aspires to from a current perspective, according to Ermotti.

Analyst consensus estimates forecast that UBS' annual revenues would stand at $50.71 billion in 2026, rising from $49.65 billion in 2025 and $47.86 billion in 2024, Market Intelligence data shows. The 2023 forecast for UBS' revenues is $40.52 billion.

UBS reported total revenues of $29.98 billion for the first nine months of 2023, compared to $26.53 billion a year ago.

Asset flows rebound

Despite the booked net loss, UBS' share price was 2.93% higher in early afternoon trading in Zurich due to a notable rebound in wealth management and deposit flows across the group.

Net new money at UBS' global wealth management business grew to $18 billion in the third quarter from $13 billion a year ago, bank filings show. Credit Suisse's wealth management unit booked net new asset inflows of $3 billion, compared to outflows of $7 billion a year ago, the filings show.

Both UBS and Credit Suisse booked net deposit inflows in wealth management in the third quarter, compared to deposit outflows a year earlier. The domestic retail operations of both banks also showed deposit inflows in the third quarter, with Credit Suisse's Swiss Bank unit seeing CHF 4 billion in new deposits in the period, reversing outflows of CHF 3 billion booked a year ago.

There was a quarter-over-quarter acceleration in net new money and deposit gains across the wealth management units of both banks, which bodes well for investor confidence in UBS' ability to restructure Credit Suisse, equity analysts at Deutsche Bank said in a Nov. 7 note. Citi analysts noted the acceleration of inflows could lead to upgrades in analyst consensus estimates for UBS' 2024 earnings.