What happened
In an eventful month for the bank, shares of UBS Group (UBS +0.24%) jumped 20.9% in August, according to S&P Global Market Intelligence. The Zurich-based bank is currently trading at almost $26 per share, up about 38% year to date.
UBS beat the major market indexes in August, as the S&P 500 dropped 1.6%, the Dow Jones Industrial Average fell 2.4%, and the Nasdaq Composite declined 1.7% last month.
So what
The major catalyst for UBS' rise in August was its second-quarter earnings report, released on Aug. 31, which saw profits soar.
The bank topped estimates with $9.5 billion in revenue, up 6.7% year over year. It also saw operating profit spike to a record $29.3 billion, but that was aided by $28.9 billion in negative goodwill on the acquisition of Credit Suisse Group earlier this year.
NYSE: UBS
Key Data Points
Excluding the negative goodwill as well as other acquisition expenses, the operating profit was about $1.1 billion. The high negative goodwill stems from UBS acquiring the distressed Credit Suisse at a rock-bottom price of $3.4 billion.
Outside of the negative goodwill, a bright spot was UBS Wealth Management, which had $16 billion in net new money, the second-highest quarter in its history.
The company also announced that Credit Suisse's domestic bank will be fully integrated into UBS, and that its deposit franchise had stabilized since coming to UBS with net deposit inflows of $18 billion in the quarter. Further, it is rolling out a plan to reduce costs by $10 billion by 2026. The cost reduction has already begun as the bank plans to cut some 3,000 jobs, or 8% of its workforce, in Switzerland.
"Our decision on Credit Suisse (Schweiz) AG follows a thorough evaluation of all available options. Our analysis clearly shows that full integration is the best outcome for UBS, our stakeholders, and the Swiss economy," Sergio Ermotti, UBS Group CEO, said.
UBS and Credit Suisse banks will continue to operate separately until they are legally merged in 2024. The complete migration of Credit Suisse clients to the UBS system is expected in 2025.
Now what
UBS is still dealing with an uncertain macroeconomic outlook, as are all banks, but the momentum in its leading wealth management business should continue to benefit UBS.
In its outlook, the company said it anticipates positive net new asset flows in both its wealth and asset management businesses.
Long term, the Credit Suisse acquisition looks like a nice fit at a great price, and there is a lot of potential here for UBS as it integrates. The stock is dirt cheap right now with a price-to-earnings ratio of just 2.5 and is trading below book value, so it is worth kicking the tires on this one.
