UBS CAN ONLY MOVE SO FAST ON CREDIT SUISSE / THE WALL STREET JOURNAL

UBS Can Only Move So Fast on Credit Suisse

The bank’s quarterly results gave shareholders a timeline for its evaluation of Credit Suisse’s books, but not for the crucial question of capital returns

By Stephen Wilmot

UBS CEO Sergio Ermotti told analysts it was too early to look at share buybacks. PHOTO: STEFAN WERMUTH/REUTERS

UBS didn’t give investors what many wanted to hear in Tuesday’s first-quarter results: updated numbers for its acquisition of Credit Suisse. 

But they don’t have long to wait.

UBS said it would send a registration document to the Securities and Exchange Commission next month with theoretical “pro forma” numbers for the combined entity. 

These will include key measures of capital adequacy and liquidity, and, crucially, a so-called purchase price allocation amounting to the company’s first read on what Credit Suisse’s balance sheet is actually worth.

So far UBS has only said that paying $3.4 billion for Credit Suisse, which had a book value of about $59 billion at the end of March, will immediately increase its tangible book value per share by a gargantuan 74%. 

But investors haven’t been impressed because that number will presumably fall as the acquirer gradually sifts through the company’s assets and liabilities. 

UBS has already started this re-evaluation process but as an outsider due to antitrust rules.

After it completes the takeover, expected in May or June, it will be able to dig deeper and provide further updates on the value it can salvage from Credit Suisse’s books. 

UBS said it expects to define the “perimeter of noncore”—what it hopes to sell or wind down—in time for its second-quarter results, with details on how it will deal with noncore assets coming later in the second half.

The bottom line for many investors might be capital returns, which UBS paused when it agreed to the takeover.

Before the deal, UBS was earning a reputation—and a valuation premium over local peers—for generating strong returns on equity and returning cash to shareholders. 

The Swiss government’s request for it to rescue Credit Suisse jacked up the risk profile while deferring the potential rewards for investors. 

The resumption of share buybacks will be a litmus test for UBS’s return to the old fold as it gains confidence in Credit Suisse’s balance sheet.

But those days still seem far off. 

“It’s way too premature to talk about it,” new Chief Executive Officer Sergio Ermotti said of share buybacks on a call with analysts.

It isn’t just the lack of clarity about Credit Suisse’s continuing outflows and books—the execution risks Chairman Colm Kelleher warned of when announcing the deal. 

There is also politics to think about. 

This was a deal brokered by Swiss authorities, but it isn’t popular and UBS can’t be seen to profiteer. 

That may limit its scope for achieving cost savings by combining the two companies’ Swiss banks, which is the most obvious source of deal synergies, and for announcing a bonanza of cash returns.

The company’s own first-quarter results didn’t improve its capital position: UBS reported its worst quarterly result since 2019, with net profit of $1 billion. 

The swing factor was a $665 million provision for litigation in a Justice Department case about pre-2008 mortgage bonds. 

UBS said the cost reflected legal progress, but it must also have been tempting for a new CEO to clear the books of legacy problems before he inherits a load more from Credit Suisse.

For risk lovers, the bargain price UBS paid for Credit Suisse and the value it could unlock through a turnaround are reasons to buy the stock. 

This just isn’t the kind of investment most UBS shareholders likely signed up for.