Growth is missing piece in UBS valuation puzzle
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Liam Proud
LONDON, Aug 14 (Reuters Breakingviews) -UBS UBSG.S boss Sergio Ermotti faces two big questions. Can he successfully integrate Credit Suisse, which his bank acquired last year in a state-backed rescue, and can he prove that the combined group has a reliable growth engine? Based on the bank’s most recent results, he’s convincing on the first point but less so on the second. That uncertainty will keep the $100 billion group’s valuation in check.
UBS is successfully shrinking the old Credit Suisse investment bank. The so-called non-core division should house just $48 billion of risk-weighted assets by the end of 2024, a 44% reduction from last summer’s level. The unit’s traders, under Beatriz Martin Jimenez, also appear to be exiting old Credit Suisse positions at a profit, since the division is also generating revenues.
Meanwhile, Ermotti is upping the pace of the integration. He added an extra $500 million to the cost cuts he plans to make this year, meaning that by the end of December he should be over halfway towards his overall 2026 savings target of $13 billion. The only quibble is how much of the benefit will drop down to UBS’s bottom line. Ermotti has so far failed to put a number on the proportion of savings he will use to fund investments.
The bigger question, though, is growth. The core wealth business and domestic Swiss bank both posted lower revenue in the second quarter of 2024 than in the first. Some of the factors may be temporary: rich clients are making fewer transactions, for example. And Ermotti can boast that the wealth unit saw $27 billion of net asset inflows in the second quarter – even as rival Morgan Stanley’s MS.N equivalent figure slumped.
Still, the growth rates for asset inflows in that key business are hardly inspiring at around 2% to 3% in recent quarters, partly because the division has been dumping less profitable clients. Ermotti wants to turbocharge things eventually, with a target of eventually grabbing $200 billion of net new assets a year by 2028. But it’s unclear exactly how he plans to do this. In any case, that goal is less than the equivalent inflow number that analysts are pencilling in for Morgan Stanley this year.
The gap arguably makes UBS’s valuation multiple of roughly 1 times forward tangible book value seem fair, even though wealth rivals like Morgan Stanley and Julius Baer BAER.S trade at 2 or 3 times, based on LSEG Datastream figures. For Ermotti, boosting the multiple means showing that he can also boost the top line.
Follow @Breakingviews on X
CONTEXT NEWS
UBS on Aug. 14 reported $11.1 billion of underlying revenue for the second quarter of 2024, up 10% year-on-year and down 7% compared with the first quarter. The bank’s underlying figures exclude integration-related one-offs from its acquisition of Credit Suisse in 2023.
The bank said that it expects to have cut $7 billion of costs because of the merger by the end of 2024, compared with a previous target of $6.5 billion.
It also increased the pace of its run-off of risk-weighted assets (RWAs) from the non-core and legacy unit, which is effectively the assets in the old Credit Suisse investment bank that UBS plans to either sell or let expire. RWAs will be $48 billion by the end of 2024 and $37 billion by the end of 2025, compared with previous targets of $56 billion and $45 billion, respectively.
Shares in UBS were up 2.35% to 25.71 Swiss francs as of 0750 GMT on Aug. 14.
UBS's uninspiring asset growth rate in the global wealth unit https://reut.rs/3M3PGEE
Editing by Aimee Donnellan and Streisand Neto
Mga Kaugnay na Asset
Pinakabagong Balita
Disclaimer: Ang mga kabilang sa XM Group ay nagbibigay lang ng serbisyo sa pagpapatupad at pag-access sa aming Online Trading Facility, kung saan pinapahintulutan nito ang pagtingin at/o paggamit sa nilalaman na makikita sa website o sa pamamagitan nito, at walang layuning palitan o palawigin ito, at hindi din ito papalitan o papalawigin. Ang naturang pag-access at paggamit ay palaging alinsunod sa: (i) Mga Tuntunin at Kundisyon; (ii) Mga Babala sa Risk; at (iii) Kabuuang Disclaimer. Kaya naman ang naturang nilalaman ay ituturing na pangkalahatang impormasyon lamang. Mangyaring isaalang-alang na ang mga nilalaman ng aming Online Trading Facility ay hindi paglikom, o alok, para magsagawa ng anumang transaksyon sa mga pinansyal na market. Ang pag-trade sa alinmang pinansyal na market ay nagtataglay ng mataas na lebel ng risk sa iyong kapital.
Lahat ng materyales na nakalathala sa aming Online Trading Facility ay nakalaan para sa layuning edukasyonal/pang-impormasyon lamang at hindi naglalaman – at hindi dapat ituring bilang naglalaman – ng payo at rekomendasyon na pangpinansyal, tungkol sa buwis sa pag-i-invest, o pang-trade, o tala ng aming presyo sa pag-trade, o alok para sa, o paglikom ng, transaksyon sa alinmang pinansyal na instrument o hindi ginustong pinansyal na promosyon.
Sa anumang nilalaman na galing sa ikatlong partido, pati na ang mga nilalaman na inihanda ng XM, ang mga naturang opinyon, balita, pananaliksik, pag-analisa, presyo, ibang impormasyon o link sa ibang mga site na makikita sa website na ito ay ibibigay tulad ng nandoon, bilang pangkalahatang komentaryo sa market at hindi ito nagtataglay ng payo sa pag-i-invest. Kung ang alinmang nilalaman nito ay itinuring bilang pananaliksik sa pag-i-invest, kailangan mong isaalang-alang at tanggapin na hindi ito inilaan at inihanda alinsunod sa mga legal na pangangailangan na idinisenyo para maisulong ang pagsasarili ng pananaliksik sa pag-i-invest, at dahil dito ituturing ito na komunikasyon sa marketing sa ilalim ng mga kaugnay na batas at regulasyon. Mangyaring siguruhin na nabasa at naintindihan mo ang aming Notipikasyon sa Hindi Independyenteng Pananaliksik sa Pag-i-invest at Babala sa Risk na may kinalaman sa impormasyong nakalagay sa itaas, na maa-access dito.
