UBS Earnings: Net Client Inflows in Legacy Credit Suisse Operations

UBS UBSG has managed to stem client outflows earlier than we anticipated. A significant positive development was the $22 billion of net new client inflows the consolidated wealth management business booked for the quarter—$3 billion of these inflows came from the legacy Credit Suisse wealth management business, and this comes after Credit Suisse lost $183 billion of its client assets over the previous four quarters.

Narrow-moat UBS reported a net loss before tax of $255 million for the third quarter of 2023. However, we believe investors should add back restructuring charges, the loss in the noncore business unit, and other nonrecurring items. In that case, we calculate that UBS delivered a normalized pretax profit of around $1.9 billion. If we also exclude the capital allocated to the noncore business, we estimate that UBS generated a normalized return on tangible equity, or ROTE, of around 9% for the quarter. A 9% ROTE is still well below UBS’ 15% 2026 target, but UBS has only achieved $3 billion of its $10 billion annual cost savings target thus far. Including the potential cost savings will place UBS’ profitability above its 15% ROTE target.

We believe that the risk of large client asset outflows has passed, and it also does not seem that UBS has discovered any fresh skeletons in Credit Suisse’s closets that may require further material markdowns. Therefore, we change our Uncertainty Rating for UBS to High from Very High. We maintain our CHF 27.50 per share fair value estimate.