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UBS posts weak earnings amid Credit Suisse buyout chaos

Not-so-optimistic results sent the stock price lower, but it remains above previous lows, and the bearish pressure has not been strong, despite the banking chaos

UBS announced its lowest quarterly earnings in three years and a bleak prognosis for interest income in its wealth management segment. While analysts had predicted a profit of roughly $1.75 billion for the quarter, the company reported a net profit of $1.03 billion.

The financial institution’s quarterly net profit dropped 52% from the previous year. However, despite the downturn, the bank saw a surge in new customers as it readied the acquisition of Credit Suisse. This is the first set of financials released since UBS’s acquisition of Credit Suisse was disclosed last month.

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UBS plans to finalize the transaction with fellow Zurich-based bank Credit Suisse by May, according to Sergio Ermotti, who was brought back as UBS CEO to manage the buyout. However, he cautioned that full integration might take up to four years.

During a call with analysts, he remarked, “There is much to do, and there will be difficult decisions to make in the coming months.”

On Monday, Credit Suisse said that the bank had borrowed far more money from the Federal Reserve’s liquidity backstop program than disclosed since customers had continued to pull money out even after the merger was made public.

2007/2008 mortgage crisis still haunts the bank

The largest bank in Switzerland’s net income decreased by $665 million due to litigation involving US residential mortgage-backed securities. It also disclosed that it is negotiating a resolution to a civil lawsuit filed with the US Department of Justice in 2018.

According to its annual report from last year, UBS was both an issuer and underwriter of US residential mortgage-backed securities in the five years prior to 2007.

The United States government began legal action against UBS in November 2018 to punish the bank for its role in other similar transactions. However, a following court lawsuit involving UBS was also unsuccessful.

CEO Ermotti reported that the bank is making progress toward settling the legacy situation, as it is in advanced conversations with the US Department of Justice.

Wealthy clients continue to deposit money

High-net-worth customers deposited a total of $28 billion during the quarter, with $7 billion coming in the first ten days after the Credit Suisse merger was announced in March.

UBS said that customers’ activity “could remain subdued in the second quarter” owing to global banking sector worries but that rising interest rates will boost its lending profits.

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The bank repurchased $1.3 billion in stock during the quarter under its share-purchasing plan. After disclosing its planned acquisition of Credit Suisse, it temporarily halted share repurchases but plans to restart them as soon as possible.

Technically speaking, the supply zone is still near the current cycle high of $22. Therefore, the stock price must climb above that level in order to confirm the bullish narrative. On the downside, the support is at the psychological level of $20, followed by the previous lows and the 200-day moving average at around $18.20.

UBS daily chart

UBS daily chart, source: author´s analysis, tradingview.com

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