The flight of wealthy investors to safe havens gave the Swiss UBS a tailwind at the beginning of the year. The major bank raised $28 billion in new money from the rich and super-rich from January to March, UBS announced on Tuesday. Of this, seven billion dollars were attributable to the last ten days of the month and thus to the period after the announcement of the Credit Suisse takeover. "The high capital inflows this quarter prove that our customers continue to see us as a haven of stability in this uncertain environment," said new CEO Sergio Ermotti.
Shifts of Credit Suisse clients, however, were not the main driver of the inflows, said a UBS spokesman. Previously, the large U.S. banks had already collected funds that customers had previously withdrawn from smaller institutions. In its business with professional clients such as pension funds and insurance companies (asset management), UBS recorded an additional $14 billion in new money thanks to strong demand for money market funds.
The crisis-ridden Credit Suisse suffered net asset outflows of 61.2 billion Swiss francs in the first quarter. The outflows have declined in the meantime, but there has not yet been a trend reversal, the bank said the day before.
Profit down significantly
UBS's profit halved to $1.03 billion in the quarter. The main impact was a $665 million increase in provisions for residential mortgage-related litigation. The precise figure suggests that UBS is close to reaching an agreement on this. In addition to the tax evasion lawsuit in France, this is the last major remaining legal dispute. According to a survey conducted by the bank itself, analysts had expected a surplus of $1.7 billion for the first quarter.
Group-wide, the earnings of the Swiss number one fell by seven percent at the beginning of the year. Instead of trading and borrowing, many customers retreated to the sidelines, so transaction revenues declined. Customer activity could remain subdued in the second quarter, the bank predicted.
The takeover of Credit Suisse is expected to be completed by the middle of the year. At the institute, a series of mishaps and failures had triggered a crisis of confidence. In mid-March, the Swiss government, together with the central bank and the Financial Market Authority, finally rushed to the aid of the institute in order to prevent severe upheavals in the country and possibly also a global financial crisis. After a weekend of hectic negotiations, the parties agreed on a takeover of CS by UBS, which will be backed by state guarantees worth 209 billion Swiss francs. The acquisition of Credit Suisse is the first merger of two global systemically important banks since the financial crisis.
"With the planned acquisition of Credit Suisse, we are taking another step forward," Ermotti explained. UBS will benefit from economies of scale and the complementary regional presence of the two banks. "I am convinced that this transaction will help to strengthen Switzerland's leading position as a financial centre and will be beneficial for the economy as a whole," Ermotti said.
With the three-billion-franc deal, UBS can make a comparatively inexpensive leap in growth. However, the Swiss number one never tires of emphasizing how great the integration risks of the transaction are. Analysts also point out that both banks could lose millionaires and billionaires who have accounts with both institutions and now do not want to put all their eggs in one basket.