UBS on Wednesday reported a net profit of $1.14 billion for the April-June period, comfortably surpassing analysts' forecasts as Switzerland's largest bank enters a new stage in the integration of its one-time rival Credit Suisse.
The net profit attributable to shareholders compared with the $528 million forecast by analysts in a company-provided poll for what were the bank's first results since UBS completed its formal legal merger with Credit Suisse in May.
Shares in UBS were expected to rise at opening, according to premarket indications by bank Julius Baer.
UBS acquired its longtime competitor last year in a rescue that was engineered by Swiss authorities when Credit Suisse collapsed after a string of financial setbacks and scandals.
In a statement, UBS CEO Sergio Ermotti said that the first-half results reflected the "significant progress" the bank had made since closing the Credit Suisse acquisition.
"We are well positioned to meet our financial targets and return to the levels of profitability we delivered before being asked to step in and stabilise Credit Suisse," he added.
"We are now entering the next phase of our integration, which will be critical to realise further substantial cost, capital, funding and tax benefits."
Revenues and operating expenses outperformed consensus expectations, and Deutsche Bank analysts said in a research note that the upside result was driven by UBS's investment bank and its non-core and legacy division.
"Furthermore, capital was a touch ahead, cost reductions are quicker-than-expected and net inflows were decent across Global Wealth Management but not in Asset Management," they said.
UBS said it had achieved $0.9 billion of additional gross cost savings, reaching around 45% of its cumulative annualised gross cost saving ambitions.
The bank has reduced non-core and legacy risk-weighted assets by 42% since the second quarter of last year, including an $8 billion decline quarter-on-quarter, it added.
UBS said the macroeconomic outlook was clouded by ongoing conflicts, geopolitical tensions and the upcoming U.S. elections. It expected these uncertainties to persist for the foreseeable future, and that they would likely lead to higher market volatility than in the first half of the year.
The bank said it was seeing positive investor sentiment and continued momentum in client and transactional activity.
It also saw moderate net interest income headwinds from ongoing mix shifts in Global Wealth Management and the effects of the Swiss National Bank's second rate cut, not yet captured in UBS's deposit pricing in Personal & Corporate Banking.
The bank said it expected to incur in the third quarter around $1.1 billion of integration-related expenses and that the pace of gross cost savings would decline modestly sequentially. Integration-related expenses should be partly offset by around $0.6 billion accretion of purchase accounting effects, it said.
UBS reported a nearly $29 billion profit during the second quarter of last year due to a huge one-off gain reflecting how the acquisition costs were far below Credit Suisse's value.
Swiss authorities oversaw the first merger of two global systemically important banks - as designated by the Financial Stability Board - in the first half of last year.
Investors warmed to the takeover, by this summer pushing up the value of UBS's shares by more than two-thirds since it bought Credit Suisse in March 2023. However, UBS shares have since lost ground during recent turmoil in global markets.
Analysts are watching UBS's absorption of Credit Suisse closely, and Ermotti said in May any delay to the technological integration of the two banks could erode planned cost savings.
Markets are also watching how Swiss authorities move forward with plans to tighten banking regulation as they seek to ensure there is no repeat of the Credit Suisse meltdown.
The Swiss government in April presented a raft of so-called "too big to fail" proposals, sketching out how UBS would need to hold additional capital to ward against mishaps in future.
Although the Swiss finance minister has suggested the sum could be between $15 billion and $25 billion, it remains unclear exactly how much it will be, and UBS has flagged "serious" concern about the increased capital requirements.
