Finance & Economics

UBS Restarts Buybacks

UBS Group AG has announced its intention to resume share buyback in the current year.

UBS Restarts Buybacks

The mentioned financial institution, which is based in Zurich, has promised to pay shareholders up to $1 billion in the second half of 2024. The bank is currently seeking to move beyond the Credit Suisse integration process. The decision to resume the share buyback is consistent with such intentions.

The financial institution said that the buyback of securities will commence following the legal merger with Credit Suisse and will exceed the level that existed before the takeover by 2026. The relevant information is contained in the creditor’s statement, which was made public on Tuesday, February 6. The financial institution has confirmed its profitability target and increased the amount of planned cost savings to $13 billion from about $10 billion.

UBS’s net loss in the three months to December last year was recorded at $279 million. This indicator turned out to be worse than analysts’ forecasts. The profit of the unit of a financial institution specializing in the implementation of asset management activities for the specified period amounted to $381 million. Analysts expected that the corresponding figure would be fixed at $1.07 billion. In this case, the gap between the forecast and the actual result is significant. The net inflow of new funds into the arm of the lender specializing in asset management amounted to $21.8 billion.

The share price of the financial institution on Tuesday morning in Zurich showed a decrease of 3.4% and was fixed at 24.94 Swiss francs ($28.644).

Sergio Ermotti, Chief Executive Officer of UBS, said during a conversation with media representatives that the bank he heads should be ready to sacrifice a small increase in revenue to achieve the goal of improving the return on financial resources. Mr. Ermotti also noted separately that 2024 will be a pivotal year as the lender moves closer to benefiting from the acquisition of Credit Suisse.

UBS suspended its buyback program last year. This decision was made by the management of the financial institution due to the acquisition of Credit Suisse with the support of the Swiss government. It is worth noting that the bank, which is currently in the process of joining the lender’s ownership structure under the management of Sergio Ermotti, was the main competitor of UBS before its collapse.

The Credit Suisse takeover deal reinforces the ambitions of the financial institution, of which Mr. Ermotti is the chief executive officer, to achieve the goal of dominating global asset management. The process of merging the two banks will reach its most difficult stage this year. UBS is committed to managing costs while reducing the portion of the inherited business that it intends to keep.

It is also known about plans to close about two-thirds of the Credit Suisse investment bank. UBS is taking over a former competitor, including almost all of its trading operations as part of a plan to exit the business, which does not correspond to the existing activity strategy.

It is worth noting that the mentioned deal provides guarantees from the Swiss government. This means that UBS will receive government support to cover losses related to certain Credit Suisse assets. Moreover, the Swiss government guarantees the maintenance of liquidity. The warranty agreement will cease to exist in the third quarter. UBS said that commitments from the Swiss government will help reduce financing costs by about $550 million per quarter.

The lender taking over the former competitor expects that the current quarter will see a higher level of customer activity. The financial institution hopes that its investment bank will return to profitability as a result of the influence of factors such as intensification of market activity, progress in integration, and growth in the banking portfolio.

In December 2023, Cevian Capital AB, a Swedish investment company, announced an increase in its stake in UBS to about 1.3%. Representatives of this firm also stated that a financial institution can achieve more than 20% return on real capital after completing the integration process. Last month, UBS chairman Colm Kelleher signaled that the lender could exceed its 15% yield target. This expectation is consistent with the forecasts of the investment company.

UBS already has the right to be named the undisputed top wealth manager at the global level. At the same time, to fully compete in the relevant area with Wall Street colleagues and increase valuation on a sustainable basis, a financial institution needs to achieve growth in the United States. Currently, the US is the largest asset management market. Sergio Ermotti has signaled that the United States will be a core element of UBS’s growth strategy.

As we have reported earlier, UBS to Pay Over $1 Billion to Settle Fraud Claims.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.