UBS Earnings: Reassuring Net Client Asset Inflows Support Our Narrow Moat Rating

UBS UBS found itself in the strange place that Credit Suisse’s April 24 earnings announcement was probably of more importance to UBS’ valuation than its own results announcement. As crucial as the Credit Suisse takeover is, one should remember that the current UBS operations will dominate the combined entity. UBS reported robust annualized net client inflows of 6% of assets under management for the first quarter of 2023 and managed to retain deposit outflows within the group. We view these trends as supportive of our narrow moat rating.

During arguably the most challenging environment for European banks since the global financial crisis, UBS managed to attract $42 billion of net new client inflows into its wealth- and asset-management businesses, in stark contrast to the sizable net outflows Credit Suisse reported. One can only speculate to what extent UBS benefited from the near collapse of Credit Suisse. Still, UBS received client inflows of $7 billion in the 10 days following the takeover announcement. UBS’ brand and reputation provided clients with sufficient comfort. We view this as a textbook example of an intangible asset moat at work for a wealth manager.

Deposits declined by $20 billion (4%) from the end of 2022. UBS highlighted that it picked up the deposit outflows in its own money market funds or as inflows into U.S. Treasury bills held on behalf of clients. Under our moat methodology, we view this as a switching cost. UBS illustrated its ability to retain client assets by offering a wide range of investment products to meet changes in market conditions and client needs.

We expect to update our CHF 22.50/$22.80 fair value estimate for UBS shortly to incorporate the takeover of Credit Suisse.