UBS’ Yard Sale Is the Star of Its Earnings Show

A year after UBS Group AG completed its emergency takeover of failing rival Credit Suisse, the project is faring better than the Swiss bank dared hope. It’s cut unwanted assets, people and costs faster than it promised — enabling it to deliver forecast-beating profits so far in 2024.

Tempering the good news is the ongoing threat of stiffer capital demands from Swiss authorities, and the bank’s need to show it can be as efficient at merging operations in its core wealth and banking businesses as it has been in shedding non-core assets. It also has to keep boosting fee income to counter the effect of falling interest rates on lending revenue. The capital part at least ought to be much clearer by the start of next year, UBS said during a second-quarter earnings call on Wednesday.

Key to UBS’s progress has been the rapid winding down of its non-core unit. That’s great for the reputation of the executive in charge, Beatriz Martin, who’s a longshot candidate to succeed Sergio Ermotti as chief executive officer when he steps down. The unit is mostly made up of assets and trades from Credit Suisse’s investment bank that don’t fit with UBS’s strategy.

Favorable market conditions have helped shift some of these corporate bonds, securitizations and currency or interest-rate bets, but the team also achieved better prices by attracting multiple bidders for many of the positions and unwanted businesses, such as Credit Suisse’s US mortgage-servicing unit.

The wind down is freeing up capital quickly. More than 40% of the risk-weighted assets that were designated non-core a year ago have been cut already, and the team is about 65% of the way toward its target for the end of 2026. Costs are dropping rapidly too, as books of trades get closed and the bank can shed technology and people involved in administering those positions. Expenses in the non-core unit have halved since June 2023 to reach an annual run rate of $2.6 billion by the end of the second quarter, well below the target of $3.5 billion the division was meant to hit by the end of this year.

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All of that means the unit’s losses are way lower than UBS expected them to be. For 2024, the pretax loss is likely to be less than $1.5 billion, versus guidance earlier this year for a $2.5 billion loss, which had already been pared from UBS’s original $4 billion prediction.