UBS Q1 profit halves as cost of old toxic debt mounts; hopes to complete Credit Suisse takeover in Q2

ZURICH: UBS Group has set aside more money to draw a line under its involvement in toxic mortgages, halving its first-quarter profit as it prepares to integrate fallen rival Credit Suisse.

Chief Executive Sergio Ermotti, back in the saddle to steer the takeover, also said "challenging" economic conditions had dampened the mood of the bank's customers and warned of the difficulties ahead as it embarks on an integration process that may take four years.

"We need time," he said in an online video. "Things are going to be hard. There is not a straight line to success but I'm pretty confident that we will be successful."

UBS's stock opened down 4.6 per cent.

The attempt by Switzerland's biggest bank to make a clean sweep of problems dating back to the global financial crisis underscores its vulnerability as it takes on the Herculean task of absorbing Credit Suisse - one whose long list of challenges includes dealing with a backlash against the deal at home.

UBS said concerns about the banking sector globally persisted and customer activity "could remain subdued in the second quarter", adding, however, that higher interest rates would bolster lending income.

It reported a 52 per cent slide in quarterly income, having made an additional US$665 million in provisions to cover litigation costs related to US residential mortgage-backed securities that played a central role in the global financial crisis.

Net profit attributable to shareholders came in at US$1 billion, below the US$1.7 billion consensus average from a UBS-conducted poll.

But the world's largest wealth manager also reported strong inflows, some US$42 billion.

Its flagship wealth management division received US$28 billion in net new money, a quarter of which came in the last ten days of March after the announcement that it would be taking over Credit Suisse.

It reported a slight decrease in year-on-year profit before tax and revenue for the division. It said there had been an increase in deposit revenues stemming from higher interest rates but at the same time, some clients 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 commenced legal action against the Swiss bank, seeking penalties for its involvement in scores of such deals. UBS subsequently lost a court case on the matter.

"We are in advanced discussions with the US Department of Justice, and I am pleased that we are making progress toward resolving the legacy matter which dates back 15 years," Ermotti said.

Investment bank revenue fell 19 per cent year-on-year, in line with expectations, and profit before tax for the division slumped 49 per cent.

Q2 TAKEOVER TARGET

UBS said it expects the takeover of Credit Suisse to close in the second quarter.

"We are focused on completing the acquisition of Credit Suisse, most likely in the second quarter of 2023," UBS said.

"While acknowledging the magnitude of, and complexity associated with, the integration and restructuring of Credit Suisse, we believe that this combination presents a unique opportunity to bring significant, long-term value to all of our stakeholders."

Scandal-plagued Credit Suisse was brought to its knees after clients left in droves amid global banking sector turmoil. Under the deal hastily engineered by Swiss authorities, UBS agreed to take it over for 3 billion Swiss francs (US$3.4 billion) and to assume up to 5 billion francs in losses.

Credit Suisse said on Monday US$68 billion in assets had left the bank in the first quarter and that outflows were continuing, highlighting the challenge faced by UBS.