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Tag: UBS Group AG

  • Swiss regulator calls for more powers after Credit Suisse collapse

    Swiss regulator calls for more powers after Credit Suisse collapse

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    Axel Lehmann, chairman of Credit Suisse Group AG, Colm Kelleher, chairman of UBS Group AG, Karin Keller-Sutter, Switzerland’s finance minister, Alain Berset, Switzerland’s president, Thomas Jordan, president of the Swiss National Bank (SNB), Marlene Amstad, chairperson of the Swiss Financial Market Supervisory Authority (FINMA), left to right, during a news conference in Bern, Switzerland, on Sunday, March 19, 2023.

    Pascal Mora | Bloomberg | Getty Images

    Switzerland’s financial regulator on Tuesday called for greater legal powers and vowed to adapts its approach in the wake of the Credit Suisse collapse.

    The 167-year-old bank was rescued by domestic rival UBS in March in a deal brokered by Swiss authorities, after a string of risk management failures and scandals triggered a client and investor exodus that forced it to the brink of insolvency.

    The Swiss Financial Market Supervisory Authority (FINMA) said in a Tuesday report that, alongside the government and the Swiss National Bank, it had achieved the aim of safeguarding Credit Suisse’s solvency and ensuring financial stability.

    It also drew attention to the “far-reaching and invasive measures” taken over the preceding years to supervise the bank and to “rectify the deficiencies, particularly in the bank’s corporate governance and in its risk management and risk culture.”

    From summer 2022 onwards, FINMA also told the bank to take “various measures to prepare for an emergency” — a warning it suggests went unheeded.

    “FINMA draws a number of lessons in its report. On the one hand, it calls for a stronger legal basis, specifically instruments such as the Senior Managers Regime, the power to impose fines, and more stringent rules regarding corporate governance,” the regulator said.

    “On the other hand, FINMA will also adapt its supervisory approach in certain areas, and will step up its review of whether stabilisation measures are ready to implement.”

    FINMA said that strategic changes announced to de-risk Credit Suisse, such as downsizing its investment bank, focusing on its asset management business and reducing its earnings volatility, were “not implemented consistently,” while “recurrent scandals undermined the bank’s reputation.”

    It also noted that, even in years when the bank posted heavy financial losses, the variable remuneration remained high, with shareholders making little use of opportunities to influence pay packets.

    Between 2012 and the bank’s emergency rescue, the regulator says it conducted 43 preliminary investigations of Credit Suisse for potential enforcement proceedings. Nine reprimands were issued, 16 criminal charges filed, and 11 enforcement proceedings were taken against the bank and three against individuals.

    FINMA said it repeatedly informed Credit Suisse of risks, recommended improvements and imposed “far reaching measures.” These included “extensive capital and liquidity measures, interventions in the bank’s governance and remuneration, and restrictions on business activities.”

    Swiss banking environment is 'completely normal' after UBS-Credit Suisse takeover: EFG CEO

    “In the period from 2018 to 2022 it also conducted 108 on-site supervisory reviews at Credit Suisse and recorded 382 points requiring action,” FINMA said.

    “In 113 of these points the risk was classed as high or critical. These figures and measures illustrate that FINMA exhausted its options and legal powers.”

    At the time of its collapse, Credit Suisse bosses attributed the loss of confidence to the market panic triggered by the collapse of Silicon Valley Bank in the U.S.

    Credit Suisse was asked over the summer to put in place crisis preparation measures, such as partial business sales and the possible sale of the entire bank in an existential emergency.

    The regulator therefore called for “extended options that would enable it to have more influence on the governance of supervised institutions.”

    These include the implementation of a Senior Managers Regime, powers to impose fines and option of regularly publishing enforcement proceedings.

    “To enable FINMA to effectively intervene in remuneration systems, a more solid legal mandate is required,” it concluded.

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  • CNBC Daily Open: Despite cool inflation, don’t expect rate cuts

    CNBC Daily Open: Despite cool inflation, don’t expect rate cuts

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    The Marriner S. Eccles Federal Reserve building during a renovation in Washington, DC, US, on Tuesday, Oct. 24, 2023.

    Valerie Plesch| Bloomberg | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    What you need to know today

    Back in the green
    U.S. stocks ticked up Wednesday as another report showed inflation’s cooling. Despite that, Treasury yields rose. The pan-European Stoxx 600 index added 0.42%. Britain’s FTSE 100 climbed 0.62%, on encouraging inflation news in the U.K., to turn positive for the year. Separately, Siemens Energy jumped 8.78% after securing guarantees from the German government.

    More good news on inflation
    U.K.’s consumer price index plunged from 6.7% in September to 4.6% in October on an annual basis, though it remained the same month on month. Both figures were below economists’ estimates. Core CPI, which excludes food, energy, alcohol and tobacco prices, rose 5.7% for the year. With those numbers, it’s likely the Bank of England will continue leaving interest rates unchanged.

    ‘Planet Earth is big enough’
    U.S. President Joe Biden met Chinese President Xi Jinping yesterday on the sidelines of the Asia-Pacific Economic Cooperation conference. The two leaders struck a conciliatory tone at the start of the summit. “We have to ensure that competition does not veer into conflict,” Biden said. And Xi, in his opening remarks, said, “Planet Earth is big enough for the two countries to succeed.”

    AT1 bond demand ‘a signal’
    UBS began selling additional tier one bonds last week. AT1 bonds were wiped out when UBS was forced to take over Credit Suisse earlier this year, causing controversy among bondholders. Still, there was “incredible” market demand for them, said CEO Sergio Ermotti, which “is a signal to the Swiss financial system” that confidence is being restored.

    [PRO] Where will cash go?
    With the high interest rates and bond yields in recent months, money market funds and Treasurys have attracted investors’ cash, sucking them away from stocks. But with October’s CPI coming in so cool that analysts are comfortable declaring a soft landing, stocks have begun rallying again. What, then, happens to all the cash parked in those funds?

    The bottom line

    After a very encouraging consumer price index reading on Tuesday, we have more evidence that inflation’s truly cooling.

    Wholesale prices in October, as measured by the producer price index, fell 0.5% for the month against the expected 0.1% increase. That’s the biggest decline in more than three years. When producer prices fall, it takes a while for those lower prices to seep into the general consumer economy, so it’s plausible we’ll see CPI continue dropping in the months ahead.

    Major U.S. indexes rose — slightly — on that encouraging news. The S&P 500 increased 0.16% and the Nasdaq Composite edged up 0.07%. The Dow Jones Industrial Average gained 0.47% for its fourth consecutive winning session.

    The stock market rally over the past two days, it seems, was fueled by investors’ expectations that lower inflation readings will prompt the Federal Reserve to cut rates sooner rather than later. Investors think there’s a 31% chance the Fed will slash rates by a full percentage point by the end of next year, according to the CME FedWatch tool.

    But that flurry of cuts is two times as aggressive as the timeline the Fed itself penciled in two months ago, noted CNBC’s Jeff Cox. And that, to put it mildly, “may be at least a tad optimistic,” Cox wrote.

    Investor optimism, ironically, may be counterproductive as well. Expectations of a rate cut forced down Treasury yields Tuesday (though they rose again yesterday). Treasury yields tend to serve as the benchmark for loans and other assets, so when they drop, financial conditions loosen — exactly what the Fed doesn’t want to see.

    “Financial conditions have eased considerably as markets project the end of Fed rate hikes, perhaps not the perfect underpinning for a Fed that professes to keeping rates higher for longer,” said Quincy Krosby, chief global strategist at LPL Financial.

    Indeed, “this is at least the 7th time in this cycle that markets [anticipate] … a potential dovish pivot,” wrote Deutsche Bank macro strategist Henry Allen. (Spoiler alert: Investors have, without exception, been disappointed the previous times as the Fed refused to budge.)

    In short: While it’s undeniable inflation’s dropping, there’s no guarantee rates will fall in tandem. It might be better to be pleasantly surprised than to be disappointed.

    — CNBC’s Jeff Cox contributed to this report.

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  • UBS boss Ermotti says ‘incredible’ bond demand is ‘a signal to the Swiss banking system’

    UBS boss Ermotti says ‘incredible’ bond demand is ‘a signal to the Swiss banking system’

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    Sergio Ermotti, CEO of UBS gestures during a panel discussion at the Swiss-American Chamber of Commerce in Zurich, Switzerland January 18, 2019.

    Arnd WIegmann | Reuters

    UBS Group CEO Sergio Ermotti says the “incredible” market demand for the bank’s recent issuance of AT1 (additional tier one) bonds is a “signal to the Swiss banking system.”

    The Swiss lender last week began selling the bonds — which were at the heart of controversy during its emergency rescue of Credit Suisse earlier this year — for the first time since the takeover.

    Ermotti told CNBC on Wednesday that he was “more than encouraged” by the massive oversubscription received for last week’s return to the market.

    “The AT1 demand was incredible — $36 billion of demand for what happened to be $3.5 billion of placements — and in my point of view, it was probably the highlight in a sense of the confidence is restoring not only for UBS, I would say also it is a signal to the Swiss financial system,” Ermotti said.

    The wipeout of $17 billion of Credit Suisse AT1 bonds in March, which was part of the rescue deal brokered by Swiss authorities, caused uproar among bondholders and continues to saddle the Swiss government and regulator with legal challenges. Some commentators suggested that it had undermined confidence in the traditionally stable and reliable Swiss banking system.

    “The first reactions were based on emotions or people that were very loud because they had their own interest, but I think that, as time went by, people had enough chances to really look at the idiosyncratic situation, and also probably look more carefully into the prospectus of what is written,” Ermotti told CNBC’s Joumanna Bercetche on the sidelines of the UBS Conference in London.

    “Those bonds were designed to be there for those kind of situations so I think that people over time, or the vast majority of the people, are coming down to a more balanced way of looking at matters,” he added.

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  • UBS sees a raft of Fed rate cuts next year on the back of a U.S. recession

    UBS sees a raft of Fed rate cuts next year on the back of a U.S. recession

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    U.S. Federal Reserve Chairman Jerome Powell takes questions from reporters during a press conference after the release of the Fed policy decision to leave interest rates unchanged, at the Federal Reserve in Washington, U.S, September 20, 2023.

    Evelyn Hockstein | Reuters

    UBS expects the U.S. Federal Reserve to cut interest rates by as much as 275 basis points in 2024, almost four times the market consensus, as the world’s largest economy tips into recession.

    In its 2024-2026 outlook for the U.S. economy, published Monday, the Swiss bank said despite economic resilience through 2023, many of the same headwinds and risks remain. Meanwhile, the bank’s economists suggested that “fewer of the supports for growth that enabled 2023 to overcome those obstacles will continue in 2024.”

    UBS expects disinflation and rising unemployment to weaken economic output in 2024, leading the Federal Open Market Committee to cut rates “first to prevent the nominal funds rate from becoming increasingly restrictive as inflation falls, and later in the year to stem the economic weakening.”

    Between March 2022 and July 2023, the FOMC enacted a run of 11 rate hikes to take the fed funds rate from a target range of 0%-0.25% to 5.25%-5.5%.

    The central bank has since held at that level, prompting markets to mostly conclude that rates have peaked, and to begin speculating on the timing and scale of future cuts.

    However, Fed Chairman Jerome Powell said last week that he was “not confident” the FOMC had yet done enough to return inflation sustainably to its 2% target.

    UBS noted that despite the most aggressive rate-hiking cycle since the 1980s, real GDP expanded by 2.9% over the year to the end of the third quarter. However, yields have risen and stock markets have come under pressure since the September FOMC meeting. The bank believes this has renewed growth concerns and shows the economy is “not out of the woods yet.”

    “The expansion bears the increasing weight of higher interest rates. Credit and lending standards appear to be tightening beyond simply repricing. Labor market income keeps being revised lower, on net, over time,” UBS highlighted.

    “According to our estimates, spending in the economy looks elevated relative to income, pushed up by fiscal stimulus and maintained at that level by excess savings.”

    The bank estimates that the upward pressure on growth from fiscal impetus in 2023 will fade next year, while household savings are “thinning out” and balance sheets look less robust.

    “Furthermore, if the economy does not slow substantially, we doubt the FOMC restores price stability. 2023 outperformed because many of these risks failed to materialize. However, that does not mean they have been eliminated,” UBS said.

    U.S. Treasury yield curve will likely continue to steepen, analyst says

    “In our view, the private sector looks less insulated from the FOMC’s rate hikes next year. Looking ahead, we expect substantially slower growth in 2024, a rising unemployment rate, and meaningful reductions in the federal funds rate, with the target range ending the year between 2.50% and 2.75%.”

    UBS expects the economy to contract by half a percentage point in the middle of next year, with annual GDP growth dropping to just 0.3% in 2024 and unemployment rising to nearly 5% by the end of the year.

    “With that added disinflationary impulse, we expect monetary policy easing next year to drive recovery in 2025, pushing GDP growth back up to roughly 2-1/2%, limiting the peak in the unemployment rate to 5.2% in early 2025. We forecast some slowing in 2026, in part due to projected fiscal consolidation,” the bank’s economists said.

    Worst credit impulse since the financial crisis

    Arend Kapteyn, UBS global head of economics and strategy research, told CNBC on Tuesday that the starting conditions are “much worse now than 12 months ago,” particularly in the form of the “historically large” amount of credit that is being withdrawn from the U.S. economy.

    “The credit impulse is now at its worst level since the global financial crisis — we think we’re seeing that in the data. You’ve got margin compression in the U.S. which is a good precursor to layoffs, so U.S. margins are under more pressure for the economy as a whole than in Europe, for instance, which is surprising,” he told CNBC’s Joumanna Bercetche on the sidelines of the UBS European Conference.

    Signs of a recession may be on the horizon, says fmr. Fed economist Claudia Sahm

    Meanwhile, private payrolls ex-health care are growing at close to zero and some of the 2023 fiscal stimulus is rolling off, Kapteyn noted, also reiterating the “massive gap” between real incomes and spending that means there is “much more scope for that spending to fall down towards those income levels.”

    “The counter that people then have is they say ‘well why are income levels not going up, because inflation is falling, real disposable incomes should be improving?’ But in the U.S., debt service for households is now increasing faster than real income growth, so we basically think there is enough there to have a few negative quarters mid-next year,” Kapteyn argued.

    A recession is characterized in many economies as two consecutive quarters of contraction in real GDP. In the U.S., the National Bureau of Economic Research Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” This takes into account a holistic assessment of the labor market, consumer and business spending, industrial production, and incomes.

    Goldman ‘pretty confident’ in the U.S. growth outlook

    The UBS outlook on both rates and growth is well below the market consensus. Goldman Sachs projects the U.S. economy will expand by 2.1% in 2024, outpacing other developed markets.

    Kamakshya Trivedi, head of global FX, rates and EM strategy at Goldman Sachs, told CNBC on Monday that the Wall Street giant was “pretty confident” in the U.S. growth outlook.

    “Real income growth looks to be pretty firm and we think that will continue to be the case. The global industrial cycle which was going through a pretty soft patch this year, we think, is showing some signs of bottoming out, including in parts of Asia, so we feel pretty confident about that,” he told CNBC’s “Squawk Box Europe.”

    Trivedi added that with inflation returning gradually to target, monetary policy may become a bit more accommodative, pointing to some recent dovish comments from Fed officials.

    “I think that combination of things — the lessening drag from policy, stronger industrial cycle and real income growth — makes us pretty confident that the Fed can stay on hold at this plateau,” he concluded.

    Correction: Between March 2022 and July 2023, the FOMC enacted a run of 11 rate hikes to take the fed funds rate from a target range of 0%-0.25% to 5.25%-5.5%. An earlier version misstated the range.

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  • CNBC Daily Open: Slowing demand means fewer revenue beats

    CNBC Daily Open: Slowing demand means fewer revenue beats

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    Signage for the “Disneyland City Hall”, in Disneyland Paris, in Marne-la-Vallee, east of Paris, on October 16, 2023.

    Ian Langsdon | Afp | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    What you need to know today

    Streak continues, sans Dow
    Major U.S. indexes continued their blistering winning streak Wednesday — except for the Dow Jones Industrial Average, which snapped a seven-day streak. Asia-Pacific markets mostly rose Thursday. Japan’s Nikkei 225 climbed around 1.5% and South Korea’s Kospi added 0.5% after dropping 3.24% in the last two sessions, wiping out more than half of its gains earlier in the week.

    Prices slump in China
    Fresh data from China’s National Bureau of Statistics showed the country continuing to struggle with deflationary pressures. China’s consumer price index for October declined 0.2% year on year, more than the 0.1% drop predicted. Producer prices also fell 2.6% — though it’s smaller than the expected 2.7% decline.

    Disney pluses subscribers
    Disney’s shares jumped around 3% in extended trading after the company reported quarterly earnings. Earnings per share came in at 82 cents, higher than the expected 70 cents. Total Disney+ subscribers, at 150.2 million, also beat forecast by more than 2 million. But the firm’s revenue fell short of estimates — its second consecutive miss — even as quarterly revenue increased 5% to $21.24 billion year on year.

    Weakness in Arm
    Arm reported earnings for the first time after its initial public offering. The semiconductor licensing company had a net loss of $110 million, but that’s because of a one-time share-based compensation of more than $500 million. Revenue, on the other hand, was up 28% year on year, as licensing sales jumped 106%. Still, shares sank 6.8% after the bell on weak guidance for the current quarter.

    [PRO] ‘Fallen angels’
    The bond market’s in its worst state in 200 years, according to BNP Paribas’ global chief investment officer. But one corner of the market — known as “fallen angels” — presents an opportunity for 8% yield at a relatively low risk-reward ratio, the analyst said. CNBC Pro screened for top-rated funds under that criteria and came up with a list of ‘fallen angels’ that might provide soaring returns.

    The bottom line

    Earning season’s winding down, and it’s been mostly a good one so far.

    Out of the approximately 88% of companies in the S&P 500 have reported results, more than 88% have surpassed earnings estimates. However, only 62% have beaten revenue expectations. This suggests slowing demand is catching up with companies — but they’ve so far managed to expand their margins by cutting costs.

    With hard-hitting reports from Disney and Arm coming in after the bell and no major economic data released, major indexes had a tepid day. Trading volume was lower than the 30-day average.

    Nonetheless, the S&P 500 managed to inch up 0.1%, its eighth straight day of gains, and the Nasdaq Composite ticked up 0.08% for its ninth positive session. The last time both indexes enjoyed such uninterrupted gains was in November 2021. But the Dow Jones Industrial Average snapped its best winning streak since July with a 0.12% drop yesterday.

    This lull in news’ only temporary. Federal Reserve Chair Jerome Powell will speak about monetary policy Thursday and October’s consumer price index reading comes out next Tuesday. Those events will serve as the next major catalysts for stocks, said AXS Investments CEO Greg Bassuk. And though it’s admittedly a very long shot, we’ll see, then, if (the surviving) major indexes manage to extend their winning streak — or precipitate a new fall.

    But for investors hoping to time markets and reap quick gains on those events, CNBC’s Bob Pisani has a warning. “The idea that you can predict the future direction of stock prices, and act accordingly — is not a successful investing strategy,” Pisani writes. “The key to investing is not market timing” — it’s giving yourself time in the market.

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  • CNBC Daily Open: Earning’s better than revenue this season

    CNBC Daily Open: Earning’s better than revenue this season

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    Visitors wearing emblematic Mickey and Minnie Mouse ears look on, in front of the Sleeping Beauty-inspired castle at Disneyland Paris, in Marne-la-Vallee, east of Paris, on October 16, 2023. characters.

    Ian Langsdon | Afp | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    What you need to know today

    Streak continues, sans Dow
    Major U.S. indexes continued their blistering winning streak Wednesday — except for the Dow Jones Industrial Average, which snapped a seven-day streak. Europe’s regional Stoxx 600 rose 0.28%, lifted by strong earnings reports. Marks and Spencer shares popped 8.39% on the back of a solid first half of the year, while Dutch wind turbine manufacturer Vestas surged 9.8% after beating profit expectations.

    Disney pluses subscribers
    Disney’s shares jumped around 3% in extended trading after the company reported quarterly earnings. Earnings per share came in at 82 cents, higher than the expected 70 cents. Total Disney+ subscribers, at 150.2 million, also beat forecast by more than 2 million. But Disney’s revenue fell short of estimates, even as it increased 5% to $21.24 billion compared with the same period a year earlier.

    Weakness in Arm
    Arm reported earnings for the first time after its initial public offering. The semiconductor licensing company had a net loss of $110 million, but that’s because of a one-time share-based compensation of more than $500 million. Revenue, on the other hand, was up 28% year on year, as licensing sales jumped 106%. Still, shares sank about 8% after the bell on Arm’s weak guidance for the current quarter.

    Fresh AT1s from UBS
    UBS started selling U.S. dollar Additional Tier 1 bonds Wednesday, with a five-year bond offering around 10% yield and a 10-year around 10.125%, according to LSEG news service IFR. Why’s this newsworthy? Because $17 billion worth of AT1 bonds were wiped out when UBS took over Credit Suisse in March, causing an uproar among bondholders — and continuing to pose legal challenges.

    [PRO] A short-cover rally?
    Stock markets are enjoying their longest winning streak in two years. But some analysts are worried that November’s blistering start isn’t a true and sustainable rally. Instead, it’s more to do with hedge funds buying up stocks to cover their short positions. (When investors bet that stock prices will move down, they have to buy shares if prices move up, which pushes up prices even further.)

    The bottom line

    Earning season’s winding down, and it’s been mostly a good one so far.

    Out of the approximately 88% of companies in the S&P 500 have reported results, more than 88% have surpassed earnings estimates. However, only 62% have beaten revenue expectations, suggesting that slowing demand is catching up with companies. The silver lining is that this phenomenon suggests margins have grown.

    With hard-hitting reports from Disney and Arm coming in after the bell and no major economic data released, major indexes had a tepid day. Trading volume was lower than the 30-day average.

    Nonetheless, the S&P 500 managed to inch up 0.1%, its eighth straight day of gains, and the Nasdaq Composite ticked up 0.08% for its ninth positive session. The last time both indexes enjoyed such uninterrupted gains was in November 2021. But the Dow Jones Industrial Average snapped its best winning streak since July with a 0.12% drop yesterday.

    This lull in news’ only temporary. Federal Reserve Chair Jerome Powell will speak about monetary policy Thursday and October’s consumer price index reading comes out next Tuesday. Those events will serve as the next major catalysts for stocks, said AXS Investments CEO Greg Bassuk. And though it’s admittedly a very long shot, we’ll see, then, if (the surviving) major indexes manage to extend their winning streak — or precipitate a new fall.

    But for investors hoping to time markets and reap quick gains on those events, CNBC’s Bob Pisani has a warning. “The idea that you can predict the future direction of stock prices, and act accordingly — is not a successful investing strategy,” Pisani writes. “The key to investing is not market timing” — it’s giving yourself time in the market.

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  • UBS resumes selling the bonds at the heart of Credit Suisse controversy

    UBS resumes selling the bonds at the heart of Credit Suisse controversy

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    Fabrice Coffrini | Afp | Getty Images

    UBS on Wednesday began selling Additional Tier 1 (AT1) bonds — which were at the heart of controversy during its emergency rescue of Credit Suisse — for the first time since completing the takeover.

    The Swiss banking giant is marketing two tranches of U.S. dollar AT1 bonds, a noncall five-year offering around a 10% yield and a noncall 10-year offering around 10.125%, according to LSEG news service IFR. Noncall bonds are bonds that only pay out at maturity.

    UBS confirmed to CNBC that it is offering Additional Tier 1 securities, but did not comment on the details of the contracts and said it will provide additional information when the offering is complete.

    The wipeout of $17 billion of Credit Suisse AT1 bonds, as part of the rescue deal brokered by Swiss authorities in March, caused uproar among bondholders and continues to saddle the Swiss government and regulator with legal challenges.

    AT1 bonds are considered a relatively risky form of junior debt and are often owned by institutional investors. They were introduced in the aftermath of the 2008 financial crisis as regulators looked to divert risk away from taxpayers and boost the capital held by financial institutions to protect against future crises.

    Fitch on Wednesday assigned the new AT1 notes a BBB rating, four notches below UBS Group’s overall viability rating of A, with two notches for “loss severity given the notes’ deep subordination” and two for “incremental non-performance risk.”

    “UBS’s new AT1 notes will contain a permanent write-down mechanism at issue. However, subject to approval by UBS Group AG’s 2024 AGM [annual general meeting], the permanent write-down mechanism will be replaced by an equity conversion mechanism from the date of the AGM, which will bring the terms in line with other European markets,” the ratings agency said.

    “The conversion feature would mean that, if approved by the AGM, the notes would be converted into a pre-defined volume of share capital of UBS Group AG if the latter’s common equity Tier 1 (CET1) ratio falls below a 7% trigger, or if a viability event is declared by FINMA [Swiss Financial Market Supervisory Authority].”

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  • CNBC Daily Open: Strange, but good, things are happening in markets and the economy

    CNBC Daily Open: Strange, but good, things are happening in markets and the economy

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    People walk by the New York Stock Exchange (NYSE) on November 02, 2023 in New York City. 

    Spencer Platt | Getty Images News | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    What you need to know today

    A fierce winning streak
    U.S. stocks rose Tuesday to hit fresh winning streaks, their longest in three years. But Asia-Pacific markets were mixed Wednesday. Japan’s Nikkei 225 ticked down 0.1% despite rising confidence among large Japanese manufacturers, according to a Reuters Tankan survey. Meanwhile, Australia’s S&P/ASX 200 climbed 0.2% a day after the country’s central bank raised rates by 25 basis points.

    Microsoft closes at a high
    Microsoft shares climbed 1.12% to hit $360.53, a record high. It’s the eighth consecutive day in which the technology giant’s shares rose, a streak unseen since January 2021. Investors cheered Microsoft CEO Satya Nadella’s surprise appearance at OpenAI’s event, where he encouraged developers to build with Microsoft’s Azure cloud infrastructure.

    ‘Absolutely booming’ Chinese sector
    China’s economy hasn’t recovered from its pandemic blues. But in the sectors of “electric vehicles and everything around sustainability and renewable power technology,” China is “absolutely booming,” Standard Chartered CEO Bill Winters told CNBC. Relatedly, China’s truck industry is increasingly using vehicles with assisted-driving technology, a critical step toward monetizing the nascent business.

    Peak, not pause?
    The U.S. Federal Reserve, European Central Bank and the Bank of England all paused interest rate hikes in recent weeks. This breather comes after dramatic hikes over the last 18 months as central banks grappled with unruly inflation. Some market watchers, in fact, think this lull in hikes isn’t so much a pause but the peak in rates — and are turning their attention to when central banks will start cutting.

    [PRO] Buy BYD
    Over the past 18 months, Warren Buffett’s Berkshire Hathaway has sold more than half its stake in Chinese electric vehicle maker BYD, according to stock filings. Despite that, analysts still think BYD’s a stock worth buying — and some even raised their price targets for the firm.

    The bottom line

    Last month’s sudden surge in Treasury yields and oil prices — both of which tend to suppress investors’ appetite for stocks — looks to be ending. No, scratch that — the increases aren’t just ending, they’re ebbing.  

    Look at oil: Contracts for both West Texas Intermediate and Brent futures fell around $3. WTI’s now at $77.01 a barrel while Brent’s $81.44, their lowest since July. That’s almost $10 per barrel less compared with a month ago, when prices jumped on fears triggered by the Israel-Hamas conflict.

    Meanwhile, the 10-year Treasury yield fell around 10 basis points to 4.569% and the 2-year yield slipped 3 basis points to 4.915%. As Treasury yields serve as the benchmark for interest rates on loans and cash investments, sinking yields generally benefit rate-sensitive companies more. In other words: the Magnificent Seven Big Tech. Amazon led the pack, shooting up 2.13% yesterday.

    That explains why the Nasdaq Composite jumped 0.9%, more than the S&P 500’s 0.28% gain and the Dow Jones Industrial Average’s 0.17% increase. Still, that’s not downplaying the movements. The S&P and Dow are enjoying their seventh consecutive session of gains, while the Nasdaq’s basking in its eighth.

    If the U.S. Federal Reserve does indeed steer the economy to a soft landing, in which inflation is contained below 2% without the economy contracting, then there could be a further rally in stocks, said HSBC. Within periods of soft landings, the S&P has jumped, on average, 22% in the space between a pause and six months after rate cuts begin, noted HSBC’s global equity strategist Alastair Pinder.

    And that immaculate disinflation isn’t just a dream. Chicago Federal Reserve President Austan Goolsbee told CNBC, “Because of some of the strangeness of this moment, there is the possibility of the golden path … that we got inflation down without a recession.”

    Both the economy and markets have truly acted in strange, unprecedented ways ever since the pandemic. From one of the worst years for stocks and bonds in 2022, to a widely heralded bull rally in the S&P — and then a correction — in 2023. And I haven’t even started on the U.S. labor market and inflation numbers. Strange may be new and unsettling, but it isn’t necessarily bad.

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  • UBS shares rise 3% as market focuses on strong underlying profit

    UBS shares rise 3% as market focuses on strong underlying profit

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    A logo of Swiss bank UBS is seen in Zurich, Switzerland March 29, 2023. 

    Denis Balibouse | Reuters

    UBS shares climbed on Tuesday morning after the Swiss banking giant resoundingly beat expectations for underlying profit.

    The bank recorded an underlying operating profit before tax of $844 million, well ahead of consensus expectations. UBS shares were up 3.2% by mid-afternoon in Europe.

    Factoring in $2 billion in expenses related to the integration of fallen rival Credit Suisse, UBS posted a bigger-than-expected third-quarter net loss attributable to shareholders of $785 million. Analysts polled by Reuters had anticipated a quarterly net loss of $444 million in a company-compiled poll.

    Here are some other highlights:

    • Total group revenues were $11.7 billion, up 23% from $9.54 billion in the second quarter.
    • CET1 capital ratio, a measure of bank liquidity, was 14.4%, unchanged from the previous quarter.
    • Credit Suisse Wealth Management generated positive net new money inflows for the first time since the first quarter of 2022, contributing to inflows of $22 billion for UBS Global Wealth Management.

    “You could see that, sequentially, we improved the underlying performance across Wealth Management, Asset Management and our Personal and Corporate banking in Switzerland. They both grew on a quarter-on-quarter basis,” UBS CEO Sergio Ermotti told CNBC on Tuesday.

    “The IB [investment bank] has been facing more challenging market conditions, particularly when you look at our business model and the fact that we have been onboarding resources from Credit Suisse. But it was a very solid quarter, and we made very good progress in our integration plans, and at the same time we saw very strong inflows from clients.”

    A ‘good set of results’

    Analysts at Citi highlighted on Tuesday that the $844 million underlying profit before tax figure was “notably ahead of prior company guidance (of break-even), treble consensus expectations and 6% ahead of our above-consensus forecast.”

    “As we expected the beat is driven by better opex [operating expense], 7% below consensus, with revenues also 1% ahead. This is then slightly offset by heavier provisions,” they noted, adding that the acceleration of Wealth Management net new money inflows in September was also “encouraging.”

    In Italy, banks and the government have a 'common target,' says Intesa Sanpaolo CEO

    UBS is also in the process of fully integrating Credit Suisse’s Swiss banking unit — a key profit center — and is expected to cut a hefty proportion of the legacy bank’s workforce.

    UBS reported net new deposits of $33 billion across its Global Wealth Management and Personal and Corporate Banking (P&C) divisions, with $22 billion coming from Credit Suisse clients and positive deposit inflows for P&C in September, the month after UBS announced the decision to integrate the domestic bank.

    The bank also announced earlier this year that it is targeting gross cost savings of at least $10 billion by 2026, when it hopes to have completed the integration all of Credit Suisse Group’s businesses.

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  • Deutsche Bank and UniCredit back $4.5 billion insurance startup Wefox with $55 million in fresh funds

    Deutsche Bank and UniCredit back $4.5 billion insurance startup Wefox with $55 million in fresh funds

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    Wefox CEO Julian Teicke.

    Wefox

    Wefox, the $4.5 billion German insurance technology group, has raised $55 million of fresh funding from Deutsche Bank and UniCredit, two anonymous sources familiar with the deal told CNBC.

    The company, which sells insurance plans via an online platform, raised the fresh cash in a debt financing deal from the two European lenders, according to the sources, who were not authorized to disclose the information publicly.

    The deal was structured as a convertible debt agreement, meaning that the debt will be converted into equity when Wefox next raises cash, the sources told CNBC.

    The fresh funding follows on from a $55 million debt round Wefox raised from JPMorgan and Barclays and a $55 million internal fundraise earlier this year.

    As Wefox didn’t raise equity, its valuation remains unchanged at $4.5 billion.

    It brings the total amount of funding Wefox has raised so far this year to $160 million and marks a vote of confidence at a time when the insurtech industry faces a grim macroeconomic environment.

    The funds will be used to help eight-year-old Wefox accelerate its global expansion plans and double down on mergers and acquisitions, according to the sources.

    Unlike other insurtech platforms like Lemonade in the U.S. or Getsafe in Germany, which offer insurance directly to consumers without involving brokers, Wefox works with a network of brokers, both in-house and externally, who distribute its insurance products.

    Wefox is also pushing into a new model of selling insurance called “affinity” distribution. This is where the company sells its insurance software to other businesses for a subscription fee — for example, an online car dealer adding car insurance at the point of sale.

    Wefox is backed by some of the best-known names in venture capital, as well as large institutional names in the traditional financial world.

    Its VC backers include Salesforce Ventures, Target Global, Seedcamp, Speedinvest, and Horizon Ventures, while UBS, Goldman Sachs, Mubadala Capital Ventures, Jupiter Asset Management are also existing investors.

    Wefox is also investing heavily in artificial intelligence, which has become a hot area of tech recently following the rise of viral AI chatbot ChatGPT.

    Wefox mainly uses AI to automate policy applications and customer service. The company has three tech hubs in Paris, Barcelona, and Milan dedicated to AI.

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  • Credit Suisse intervention avoided ‘financial crisis,’ Swiss National Bank chairman says

    Credit Suisse intervention avoided ‘financial crisis,’ Swiss National Bank chairman says

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    Thomas Jordan, president of the Swiss National Bank (SNB), speaks during the bank’s annual general meeting in Bern, Switzerland, on Friday, April 28, 2023.

    Bloomberg | Bloomberg | Getty Images

    Jordan suggested that without the ELA+ loan, which was not secured in the manner typically required by the SNB, Credit Suisse risked being unable to meet its financial obligations, jeopardizing systemic stability.

    Jordan’s comments echoed those of FINMA CEO Urban Angehrn, who suggested in April that allowing Credit Suisse to fall into bankruptcy would have crippled the Swiss economy and likely resulted in deposit runs on other banks.

    However, Jordan noted that that there were important lessons to be learned regarding liquidity regulations and protecting against faster and larger outflows of customer deposits, according to Reuters.

    The Swiss government, SNB and FINMA faced criticism and legal challenges over their handling of the forced takeover, particularly over the lack of shareholder input and the wipeout of $17 billion of Credit Suisse’s additional tier-one (AT1) bonds, which were written down to zero while common stockholders received payouts.

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  • GitLab (NASDAQ:GTLB) Price Target Raised to $62.00 at UBS Group

    GitLab (NASDAQ:GTLB) Price Target Raised to $62.00 at UBS Group

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    GitLab (NASDAQ:GTLB – Free Report) had its price objective raised by UBS Group from $55.00 to $62.00 in a research note issued to investors on Wednesday, Benzinga reports. They currently have a buy rating on the stock.

    GTLB has been the topic of several other reports. Wolfe Research initiated coverage on shares of GitLab in a report on Tuesday, June 20th. They issued a market perform rating on the stock. Royal Bank of Canada upped their price objective on shares of GitLab from $60.00 to $62.00 and gave the company an outperform rating in a report on Wednesday. Scotiabank upped their price objective on shares of GitLab from $58.00 to $60.00 and gave the company an outperform rating in a report on Wednesday. TD Cowen boosted their target price on shares of GitLab from $56.00 to $63.00 and gave the company an outperform rating in a research report on Wednesday. Finally, Truist Financial boosted their target price on shares of GitLab from $60.00 to $65.00 and gave the company a buy rating in a research report on Wednesday. Five analysts have rated the stock with a hold rating and thirteen have given a buy rating to the stock. According to data from MarketBeat, the company presently has an average rating of Moderate Buy and a consensus price target of $61.94.

    View Our Latest Report on GitLab

    GitLab Trading Up 0.5 %

    Shares of GTLB opened at $49.99 on Wednesday. The company has a market cap of $7.64 billion, a price-to-earnings ratio of -37.31 and a beta of 0.18. GitLab has a 1-year low of $26.24 and a 1-year high of $62.12. The company’s fifty day simple moving average is $48.14 and its 200 day simple moving average is $41.69.

    GitLab (NASDAQ:GTLB – Get Free Report) last released its quarterly earnings data on Tuesday, September 5th. The company reported $0.01 EPS for the quarter, beating the consensus estimate of ($0.03) by $0.04. GitLab had a negative net margin of 42.84% and a negative return on equity of 22.82%. The firm had revenue of $139.58 million for the quarter, compared to the consensus estimate of $129.81 million. During the same period in the previous year, the company earned ($0.40) earnings per share. The company’s quarterly revenue was up 38.1% on a year-over-year basis. As a group, research analysts forecast that GitLab will post -1.03 earnings per share for the current year.

    Insider Buying and Selling

    In related news, CEO Sytse Sijbrandij sold 230,000 shares of the company’s stock in a transaction dated Monday, July 17th. The shares were sold at an average price of $53.06, for a total transaction of $12,203,800.00. The transaction was disclosed in a legal filing with the Securities & Exchange Commission, which is available at this link. In other news, CEO Sytse Sijbrandij sold 230,000 shares of the stock in a transaction dated Monday, July 17th. The shares were sold at an average price of $53.06, for a total value of $12,203,800.00. The transaction was disclosed in a legal filing with the Securities & Exchange Commission, which is accessible through the SEC website. Also, CFO Brian G. Robins sold 10,000 shares of the stock in a transaction dated Wednesday, June 14th. The stock was sold at an average price of $51.07, for a total transaction of $510,700.00. Following the completion of the transaction, the chief financial officer now directly owns 520,134 shares of the company’s stock, valued at approximately $26,563,243.38. The disclosure for this sale can be found here. Insiders sold 290,580 shares of company stock valued at $15,179,123 over the last quarter. 28.04% of the stock is owned by company insiders.

    Institutional Inflows and Outflows

    A number of institutional investors and hedge funds have recently made changes to their positions in GTLB. Raymond James & Associates lifted its holdings in shares of GitLab by 62.6% in the first quarter. Raymond James & Associates now owns 4,289 shares of the company’s stock worth $234,000 after acquiring an additional 1,652 shares during the last quarter. Bank of New York Mellon Corp lifted its holdings in shares of GitLab by 3,816.3% in the first quarter. Bank of New York Mellon Corp now owns 182,343 shares of the company’s stock worth $9,930,000 after acquiring an additional 177,687 shares during the last quarter. BlackRock Inc. lifted its holdings in shares of GitLab by 13.1% in the first quarter. BlackRock Inc. now owns 2,821,575 shares of the company’s stock worth $153,635,000 after acquiring an additional 327,244 shares during the last quarter. Blair William & Co. IL increased its stake in shares of GitLab by 229.4% in the first quarter. Blair William & Co. IL now owns 34,096 shares of the company’s stock valued at $1,857,000 after buying an additional 23,746 shares during the period. Finally, Sei Investments Co. acquired a new position in shares of GitLab in the first quarter valued at approximately $1,634,000. Institutional investors own 54.15% of the company’s stock.

    GitLab Company Profile

    (Get Free Report)

    GitLab Inc, through its subsidiaries, develops software for the software development lifecycle in the United States, Europe, and the Asia Pacific. It offers GitLab, a DevOps platform, which is a single application that leads to faster cycle time and allows visibility throughout and control over various stages of the DevOps lifecycle.

    Featured Stories

    Analyst Recommendations for GitLab (NASDAQ:GTLB)

    Receive News & Ratings for GitLab Daily – Enter your email address below to receive a concise daily summary of the latest news and analysts’ ratings for GitLab and related companies with MarketBeat.com’s FREE daily email newsletter.

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  • A ‘historic’ result but still a ‘construction site’: Analysts react to blowout UBS earnings

    A ‘historic’ result but still a ‘construction site’: Analysts react to blowout UBS earnings

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    Swiss authorities brokered the controversial emergency rescue of Credit Suisse by UBS for 3 billion Swiss francs ($3.37 billion) over the course of a weekend in March.

    Fabrice Coffrini | AFP | Getty Images

    UBS shares rallied to 15-year highs on the back of what analysts branded a “historic” earnings report, though Deutsche Bank said the Swiss banking giant may remain a “construction site” for some time.

    The group posted second-quarter net profit of $28.88 billion on Thursday as a result of $28.93 billion in negative goodwill from its acquisition of stricken rival Credit Suisse, which was brokered by Swiss authorities in March and completed on June 12.

    UBS also announced that it will fully integrate Credit Suisse’s Swiss banking unit, a key profit center, in 2024. This will result in 1,000 redundancies on top of a further 2,000 reduction in head count across the group as part of a mass restructure of the rescued lender.

    UBS shares were up 5.6% by midafternoon in Zurich on Thursday, touching levels not seen since late 2008.

    Notably, UBS highlighted that the massive net asset and deposit outflows seen by Credit Suisse over the last year have finally begun to reverse, and turned positive in June. Meanwhile, UBS’ CET1 ratio, a measure of bank solvency, nudged up to 14.4% from 14.2% in the same period last year, despite the disruption of one of the largest mergers in banking history.

    “The underlying UBS business is seemingly not impacted by the deal. Non-Core is significant but made solid progress and the CET1 ratio was strong/ahead of expectations in 2Q23,” Deutsche Bank analysts Benjamin Goy and Sharath Kumar said in a research note Thursday.

    “Clearly the group remains a construction site in the near term, however we believe this set of results and announcements should give confidence in the mid-term bull case, Buy.”

    This bullishness was echoed by Bruno Verstraete, partner at Zurich-based Lakefield Partners, who told CNBC that Thursday’s result was a “once in a blue moon, historic number.”

    “Clearly the good news is indeed that stabilization came and that the market seems to de-risk what was out there and what was potentially something which still had some hidden dead bodies in the cupboard,” he said, referring to the Credit Suisse’s troubled history of legacy compliance and oversight failures.

    “That seems not to be the case now, that seems to be under control, and I think investors are really reacting positively to that.”

    UBS CEO Sergio Ermotti discusses first earnings report since Credit Suisse acquisition

    Earlier this month, UBS announced that it had ended a 9 billion Swiss franc ($10.24 billion) loss protection agreement and a 100 billion franc public liquidity backstop that were put in place by the Swiss government when it agreed to take over Credit Suisse in March.

    Verstraete suggested that severing any financial dependence on the Swiss government and central bank had freed up UBS to take the decision on absorbing Credit Suisse’s domestic banking unit without being subject to any political pressure. The prospect of further mass layoffs may be unpopular among some portions of the political and public sphere in Switzerland.

    “It’s difficult to combine a blowout result like that and then to announce layoffs at the same time. I think there will be different ways of layoffs in order to get to that integration and into the cost-cutting opportunity that is there. That’s clearly positive for the investors,” Verstraete said.

    However, he argued that it is in the interests of the Swiss public to have a “solid bank.”

    “One third of Switzerland is banking with the group, combined. They want to have a stable group, they don’t want to have a mastodon created that is too big to save. I think this de-risking, this going from a risk culture to another one is something that is clearly going to be beneficial for the general public in the end,” Verstraete added.

    UBS earning results are 'historic,' says analyst

    UBS on Thursday announced plans to further wind down noncore units of Credit Suisse’s ailing investment bank, wealth management and asset management divisions, which it said are “not aligned with our strategy and policies.”

    Gildas Surry, senior analyst at Paris-based Axiom Alternative Investments, told CNBC on Thursday that the market will be closely watching UBS’ efforts to wind down these noncore divisions, and seeking further guidance on the future of the bank’s CET1 ratio.

    “What is very positive is the actual inflows, so the deposit reversal is taking place that’s also a very good sign for the franchise,” Surry said.

    “The integration of Swiss operations from Credit Suisse is very much in line so nothing new there, but what’s going to be very interesting is indeed the timeline of share buybacks, and for that we need to have the repayment of the funding line from the Swiss National Bank and also the demonstration that UBS has access to the AT1 markets following the write-downs of the Credit Suisse AT1s in March.”

    The Swiss government, central bank and UBS came under fire in March after the emergency rescue package included the controversial write-down of 16 billion francs of Credit Suisse AT1 bonds.

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  • CNBC Daily Open: Jobs growth slowed down. Markets shot up

    CNBC Daily Open: Jobs growth slowed down. Markets shot up

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    A help wanted sign on a storefront in Ocean City, New Jersey, US, on Friday, Aug. 18, 2023. Surveys suggest that despite cooling inflation and jobs gains, Americans remain deeply skeptical of the president’s handling of the post-pandemic economy. Photographer: Al Drago/Bloomberg via Getty Images

    Al Drago | Bloomberg | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    What you need to know today

    Bonanza profits for UBS
    Net profit for UBS hit $28.88 billion in the second quarter, far higher than the $12.8 billion expected. That’s the Swiss bank’s first quarterly earnings since it acquired Credit Suisse. Earlier this month, UBS announced it had terminated a 9 billion Swiss franc ($10.24 billion) loss protection agreement with the Swiss government, suggesting the bank’s integration of Credit Suisse is going smoothly.

    Job creation slowed
    Job growth in the U.S. slowed to 177,000 in August, according to payroll company ADP. That’s fewer than economists’ expectation of 200,000 — which is itself already much lower than July’s downwardly revised 371,000. It’s a sign the effects of high interest rate are starting to be felt, giving traders hope the Federal Reserve might pause hikes.

    Markets regain ground
    U.S. stocks rallied Wednesday on the back of weaker-than-expected economic data, giving the S&P 500 a four-day winning streak. Asia-Pacific markets traded mixed Thursday. Japan’s Nikkei 225 rose around 1% as data showed retail sales for July jumping 6.8% year on year, sharply higher than the expected 5.4%. But China’s Shanghai Composite lost 0.5% as economic data disappointed again.

    Mixed signs in China
    China’s factory activity in August shrank for the fifth straight month, but at a slower pace than July. Non-manufacturing activity expanded for the month, but dipped to its lowest level this year. Meanwhile, retail sales in August experienced a marked increase compared with July, according to the China Beige Book’s survey of Chinese businesses.

    [PRO] China plus three
    Amid a prolonged downturn in China’s economy, investors are growing bearish on the stock market. But this could be an opportunity for investors to put their money into other Asian markets, analysts say. Here are the three Asian markets analysts recommend — and the best ways to play them.

    The bottom line

    Bad news is good news again for markets.

    Markets last week were gripped by the fear that interest rates will remain high — or go even higher than they already are — in the face of an unyieldingly strong economy and stubborn inflation. (Recall how the 10-year Treasury yield, which typically reflects rate expectations, hit a 16-year high last week.)

    Those worries dissipated somewhat Wednesday.

    New data showed that economic growth, while still hot enough to suggest a soft landing, was not quite as scorching as previously thought. Second-quarter gross domestic product the U.S. was revised downwards from 2.4% to 2.1% on an annualized basis.

    Moreover, job creation for August was lower than expected. In another encouraging sign that inflation might be moderating, pay growth for workers slowed, regardless of whether they changed jobs or stayed in their current positions, according to ADP.

    “This month’s numbers are consistent with the pace of job creation before the pandemic,” Nela Richardson, chief economist at ADP, said in a press release. “After two years of exceptional gains tied to the recovery, we’re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede.”

    In sum, there’s hope the Federal Reserve might loosen its grip on monetary policy, based on the weaker-than-expected economic data. Markets cheered the news.

    The S&P 500 rose 0.38%. It might seem a small figure, but it’s statistically significant for a few reasons: One, it gives the index a four-day winning streak; two, it helped the index close above 4,500, breaking a key psychological barrier; three, it helped to trim August’s losses to around 1.6%, down from an intraday low of 5.53% on August 18. The Dow Jones Industrial Average inched up 0.11% and the Nasdaq Composite climbed 0.54%.

    For tomorrow, look out for the personal consumption expenditures index, which measures how much consumers spent in July. If inflation numbers come in soft, then that completes the trifecta of data — economic growth, jobs and inflation — that the Fed wants to see slow down. Then markets can probably heave a sigh of relief, for now.

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  • UBS shares jump to 2008 highs after profit beat, job cuts announcement

    UBS shares jump to 2008 highs after profit beat, job cuts announcement

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    General view of the UBS building in Manhattan on June 5, 2023 in New York City.

    Eduardo Munoz Alvarez | View Press | Corbis News | Getty Images

    UBS shares reached their highest point since late 2008 during early trade in Zurich on Thursday, after the Swiss banking giant posted a mammoth profit beat and announced thousands of layoffs as it plans to fully absorb Credit Suisse’s Swiss bank.

    UBS posted second-quarter profit of $28.88 billion in its first quarterly earnings report since Switzerland’s largest bank completed its takeover of stricken rival Credit Suisse.

    Analysts had projected net profit of $12.8 billion for the three months to the end of June, according to a Reuters poll.

    UBS said the result primarily reflected $28.93 billion in negative goodwill on the Credit Suisse acquisition. Underlying profit before tax, which excludes negative goodwill, integration-related expenses and acquisition costs, came in at $1.1 billion.

    Negative goodwill represents the fair value of assets acquired in a merger over and above the purchase price. UBS paid a discounted 3 billion Swiss francs ($3.4 billion) to acquire Credit Suisse in March.

    UBS CEO Sergio Ermotti told CNBC’s “Squawk Box Europe” on Thursday that the bank is making “very good progress” with its integration plans.

    “When people look into those numbers, they will clearly understand that this negative goodwill is the equity necessary to sustain $240 billion of risk-weighted assets and the financial resources to go through a deep restructuring that is necessary at Credit Suisse, because our analysis has proven that the business model was not viable any longer,” he told CNBC’s Joumanna Bercetche.

    “Credit Suisse has excellent people, clients and product capabilities, but the business model was not sustainable any longer and needs to be restructured.”

    UBS shares were up 4.9% around an hour into trading.

    Here are some other highlights:

    • CET1 capital ratio, a measure of bank liquidity, reached 14.4% versus 14.2% in the second quarter of 2022.
    • Return on tangible equity (excluding negative goodwill, integration-related expenses and acquisition costs) was 4.3%.
    • CET1 leverage ratio was 4.8% versus 4.4% a year ago.

    Credit Suisse’s Swiss bank to be fully absorbed

    Credit Suisse’s stalwart domestic banking unit will be fully integrated into UBS, the group also announced on Thursday, with a merging of legal entities expected to close in 2024.

    The fate of Credit Suisse’s flagship Swiss bank, a key profit center for the group and the only division still generating positive earnings in 2022, was a focal point of the acquisition, with some analysts speculating that UBS could spin it off and float it in an IPO.

    Ermotti said the bank’s analysis had determined that this is “the best outcome for UBS, our stakeholders and the Swiss economy.”

    The integration may prove more controversial in Switzerland because of the possibility of heavy job losses in the process. UBS confirmed Thursday that the integration of the Swiss bank will result in 1,000 redundancies, beginning in late 2024, while a further 2,000 layoffs are expected due to the wider restructure of Credit Suisse.

    The Credit Suisse acquisition was part of an emergency rescue deal mediated by Swiss authorities over the course of a weekend in March. Earlier this month, UBS announced that it had ended a 9 billion franc ($10.24 billion) loss protection agreement and a 100 billion franc public liquidity backstop that were put in place by the Swiss government when it agreed to take over Credit Suisse in March.

    UBS earning results are 'historic,' says analyst

    “Clients will continue to receive the premium level of service they expect, benefiting from enhanced offerings, expert capabilities and global reach,” Ermotti said of the integration of Credit Suisse’s Swiss banking division.

    “Our stronger capital base will enable us to keep the combined lending exposures unchanged, while maintaining our risk discipline.”

    The bank also announced that it is targeting gross cost savings of at least $10 billion by 2026, when it hopes to have completed the integration all of Credit Suisse Group’s businesses.

    UBS delayed reporting its second-quarter results — initially scheduled for July 25 — until after completing the Credit Suisse takeover on June 12.

    In the previous quarter, UBS suffered a surprise 52% annual drop in net profit due to a legacy litigation issue relating to U.S. mortgage-backed securities.

    UBS shares closed Wednesday’s trade up nearly 30% since the turn of the year, according to Eikon.

    In a separate Thursday filing, the Credit Suisse subsidiary posted a second-quarter net loss of 9.3 billion francs, as it saw net asset outflows of 39.2 billion francs, with assets under management falling 3% amid a mass exodus of clients and staff.

    The Thursday report was Credit Suisse’s last as an independent entity, and showed that, despite the rescue, the loss of client confidence that precipitated the bank’s near collapse in March has yet to be reversed.

    UBS nevertheless noted that this attrition rate was slowing, and the bank will be keen to retain as many Credit Suisse clients and customers as possible, in order to make the colossal merger work in the long run.

    UBS’ Ermotti told CNBC on Thursday that both UBS and Credit Suisse had seen an uptick in deposit inflows in the second quarter and in the current one so far, and that this was evidence that clients are “staying loyal.”

    For the second quarter, net inflows into deposits for the combined group were $23 billion, of which $18 billion came from Credit Suisse’s wealth management and Swiss bank divisions.

    Though Credit Suisse continued to suffer net asset outflows, UBS said that these slowed over the second quarter and turned positive after the acquisition was completed in June.

    “Credit Suisse lost around $200 billion during its difficult times in 2022 and 2023, and we are seeing now some of this coming back, and our goal is to try to get back as much as possible. It’s not easy, but it is our ambition,” Ermotti added.

    UBS’ flagship global wealth management business received $16 billion in net new money over the three months to the end of June, its highest second-quarter net inflows for over a decade.

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  • Stocks making the biggest moves midday: Best Buy, Big Lots, Coinbase, Nio and more

    Stocks making the biggest moves midday: Best Buy, Big Lots, Coinbase, Nio and more

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    Check out the companies making headlines in midday trading.

    Best Buy  — Shares popped nearly 6% after the retailer’s fiscal second-quarter earnings beat on both the top and bottom lines. Adjusted earnings per share came in at $1.22, versus the $1.06 expected from analysts polled by Refintiv. Revenue was $9.58 billion, topping the consensus estimate of $9.52 billion. However, Best Buy lowered the top end of its revenue outlook for the year.

    Big Lots — The discount retailer surged 26.7% after its earnings report came in better than analysts expected. Big Lots lost $3.24 per share, on an adjusted basis, less than the $4.11 forecasted by analysts surveyed by FactSet. Revenue exceeded the consensus estimate of $1.1 billion, coming in at $1.14 billion.

    Coinbase, Marathon Digital, Riot Platforms — Stocks tied to the cryptocurrency industry soared after a court ruled against the Securities and Exchange Commission in a lawsuit about spot bitcoin ETFs. Shares of Coinbase, which is named as a custodial partner in several proposed bitcoin ETFs, jumped 13%. Bitcoin mining stocks also rose, with Marathon Digital surging 24% and Riot Platforms climbing 15%.

    3M — Shares gained 2.6% after the company agreed to settle lawsuits regarding potentially defective U.S. military earplugs for $6.01 billion. The deal had grown into the largest mass tort litigation in U.S. history.

    Heico — The engine and aircraft part maker retreated 3.1%. Despite beating expectations for revenue in the quarter, the company said its operating margin fell when compared with the same quarter a year ago.

    Nio — The Chinese electric vehicle maker slid 5.8% after posting a wider quarterly loss than anticipated. Industry giant Tesla climbed more than 5.4%.

    Nvidia — The artificial intelligence stock rallied 4%, part of a broader ascent among technology stocks in Tuesday’s session. Morgan Stanley reiterated its overweight rating on the stock, noting its strong earnings report last week can be a positive signal for the AI supply chain.

    PDD Holdings — U.S.-listed shares jumped 17.8%. The Chinese e-commerce company beat Wall Street expectations when reporting second-quarter earnings. It noted a positive shift in consumer sentiment during the quarter.

    Oracle — Software giant Oracle climbed 2.9% following an upgrade from UBS to buy from neutral. UBS said the stock could have upside ahead due to tailwinds tied to artificial intelligence.

    AT&T, Verizon — The telecommunication giants each added 2.3% on the back of a Citi upgrade to buy. The firm cited stabilization in the wireless environment and said the stocks’ valuations may be over-discounting potential costs tied to mitigating lead-covered cables.

    Alphabet, General Motors — Google Cloud and General Motors said Tuesday they’re working together to explore artificial intelligence opportunities across the automaker’s business. Following the announcement, shares of Google Cloud’s parent company Alphabet and General Motors rose 3.5% and 0.6%, respectively, during midday trading.

    Catalent — Catalent jumped more than 5% after the biotech company issued a solid revenue outlook and announced a deal with activist investor Elliott Investment Management. For fiscal 2024, Catalent forecasted revenue in the range of $4.30 billion to 4.50 billion, far above the $4.19 billion expected by analysts polled by FactSet. Additionally, Catalent agreed to name four new independent directors to its board, two of whom will be nominated by Elliott. It also agreed to a review of its business and strategy.

    Ginkgo Bioworks — The biotechnology company’s stock popped more than 18% after announcing a five-year cloud and AI partnership with Google Cloud. As part of the deal, Ginkgo Bioworks will work to create new large language models for biology and biosecurity uses. Alphabet shares were last up more than 3%.

    Rockwell Automation — The industrial stock gained nearly 2% after Wells Fargo upgraded the stock to equal weight from underweight. The Wall Street firm said it’s bullish on Rockwell’s earnings growth potential.

    Airbnb — The vacation booking platform climbed 4.8%. Bernstein reiterated its outperform rating and said investors should buy the stock after a recent pullback in share prices.

    Palantir – The software stock surged more than 5%. Bank of America reiterated its buy rating on Palantir, calling the company a “key player” in implementing secure AI despite the recent share pullback.

    Splunk — Shares of the software company added 1.8% on Tuesday after Jefferies named the company a top pick in a Tuesday note. Jefferies said Splunk is now in position to deliver “mid-teens” increases in annual revenue after a management overhaul that began 18 months ago.

    Futu Holdings — The Asian wealth management stock popped 10% following a double-upgrade to buy from underperform by Bank of America. The Wall Street bank said to expect more growth in overseas markets.

    NextEra Energy Partners — The energy stock advanced 3.7% on the back of an upgrade from Raymond James to outperform from market perform. Raymond James said investors should buy the dip on the stock.

    — CNBC’s Sarah Min, Samantha Subin, Yun Li, Hakyung Kim, Michelle Fox, Pia Singh and Jesse Pound contributed reporting

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  • These banks are solid and cheap. But here’s why investors should be cautious

    These banks are solid and cheap. But here’s why investors should be cautious

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    A combination file photo shows Wells Fargo, Citibank, Morgan Stanley, JPMorgan Chase, Bank of America and Goldman Sachs.

    Reuters

    With the banking sector facing a myriad of crosscurrents — including stricter government regulations, higher interest rates and scrutiny from U.S. rating agencies — financial stocks are looking cheap. But the Club is exercising caution when it comes to our two bank names: Wells Fargo (WFC) and Morgan Stanley (MS).

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  • UBS to pay $1.4 billion over fraud in mortgage-backed securities

    UBS to pay $1.4 billion over fraud in mortgage-backed securities

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    General view of the UBS building in Manhattan on June 5, 2023 in New York City.

    Eduardo Munoz Alvarez | View Press | Corbis News | Getty Images

    Swiss bank UBS agreed to pay a combined $1.4 billion in civil penalties over fraud and misconduct in its offering of mortgage backed securities dating back to the global financial crisis, federal prosecutors announced Monday.

    The bank, in its own statement Monday, described the settlement as dealing with a “legacy matter” dating from 2006 to 2007, leading up to the financial crisis.

    The settlement concludes the final case brought by the Justice Department against a number of the largest financial institutions over misleading statements made to the purchasers of those mortgage backed securities. The cumulative recoveries in the cases now total $36 billion, according to the Justice Department.

    In the years leading up to the financial crisis, investment banks packaged, securitized and sold bundles of mortgages to institutional buyers. Those securities were rated and graded according to quality, with various “tranches” of mortgages hypothetically safeguarding against the risk of complete default.

    But unbeknownst to the buyers, those mortgages were not as high-quality as their ratings suggested. UBS, like other banks who settled with the Justice Department, were aware that the mortgages underneath the mortgage-backed securities didn’t comply with underwriting standards.

    UBS conducted “extensive” due diligence on the underlying loans before it created and sold the securities to its clients, prosecutors alleged, and despite knowing of the significant issues with the products, continued to sell them to financial success.

    The Justice Department has secured settlements with 18 other financial institutions over mortgage-backed security issues, including Bank of America, Citigroup, General Electric, Goldman Sachs, JPMorgan, and Wells Fargo.

    Credit Suisse, the defunct Swiss bank now owned by UBS, also settled with the Justice Department over misconduct related to MBS offerings.

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  • UBS ends Credit Suisse’s government and central bank protections

    UBS ends Credit Suisse’s government and central bank protections

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    The logos of Swiss banks Credit Suisse and UBS on March 16, 2023 in Zurich, Switzerland.

    Arnd Wiegmann | Getty Images News | Getty Images

    UBS on Friday said that it has ended a 9 billion Swiss franc ($10.27 billion) loss protection agreement and a 100 billion Swiss franc public liquidity backstop that were put in place by the Swiss government when it took over rival Credit Suisse in March.

    UBS said the decision followed a “comprehensive assessment” of Credit Suisse’s non-core assets that were covered by the liquidity support measures.

    “These measures, together with the intervention of UBS, contributed to the stabilization of Credit Suisse and financial stability in Switzerland and globally,” UBS said in a statement.

    Credit Suisse has also fully repaid the emergency liquidity assistance loan of 50 billion Swiss francs obtained from the Swiss National Bank in March, as the lender teetered on the brink after a collapse in shareholder and investor confidence, UBS confirmed.

    “These measures, which were created under emergency law to preserve financial stability, will thus cease to exist, and the Confederation and taxpayers will no longer bear any risks arising from these guarantees,” the Swiss government said in a statement Friday.

    “Furthermore, the Confederation earned receipts of around CHF 200 million on the guarantees.”

    The Swiss Federal Council plans to submit a bill in parliament to introduce a public liquidity backstop (PLB) under ordinary law, while work continues on a “comprehensive review of the too-big-to-fail regulatory framework.”

    The 9 billion Swiss franc LPA was intended to insure UBS on losses above 5 billion Swiss francs following the takeover, which was brokered over a frenetic weekend in March amid talks with the Swiss government, the SNB and the Swiss Financial Market Supervisory Authority.

    The emergency rescue deal saw UBS acquire Credit Suisse for a discount price of 3 billion Swiss francs, creating a Swiss banking and wealth management behemoth with a $1.6 trillion balance sheet.

    “After reviewing all assets covered by the LPA since the closing in June and taking the appropriate fair value adjustments, UBS has concluded that the LPA is no longer required,” UBS said.

    “Therefore, UBS has given notice of voluntary termination effective 11 August 2023. UBS pays a total of CHF 40 million to compensate the Swiss Confederation for the establishment of the LPA.”

    The 100 billion Swiss franc public liability backstop was established on March 19 by the Swiss government and allowed the SNB to provide liquidity support to Credit Suisse if needed, underwritten by a federal default guarantee.

    UBS confirmed on Friday that all loans drawn under the PLB were fully repaid by Credit Suisse by the end of May, and that the group had terminated the PLB agreement after a review of its funding situation.

    “Through 31 July 2023, Credit Suisse expensed a commitment fee and a risk premium totaling CHF 214 million, including approximately CHF 61 million to the SNB and CHF 153 million to the Swiss Confederation,” UBS added.

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  • Moody’s cuts ratings of 10 U.S. banks and puts some big names on downgrade watch

    Moody’s cuts ratings of 10 U.S. banks and puts some big names on downgrade watch

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    A general view of the New York Stock Exchange (NYSE) on Wall Street in New York City on May 12, 2023.

    Angela Weiss | AFP | Getty Images

    Moody’s cut the credit ratings of a host of small and mid-sized U.S. banks late Monday and placed several big Wall Street names on negative review.

    The firm lowered the ratings of 10 banks by one rung, while major lenders Bank of New York Mellon, U.S. Bancorp, State Street, Truist Financial, Cullen/Frost Bankers and Northern Trust are now under review for a potential downgrade.

    Moody’s also changed its outlook to negative for 11 banks, including Capital One, Citizens Financial and Fifth Third Bancorp.

    Among the smaller lenders receiving an official ratings downgrade were M&T Bank, Pinnacle Financial, BOK Financial and Webster Financial.

    “U.S. banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets,” Moody’s analysts Jill Cetina and Ana Arsov said in the accompanying research note.

    “Meanwhile, many banks’ Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital. This comes as a mild U.S. recession is on the horizon for early 2024 and asset quality looks set to decline from solid but unsustainable levels, with particular risks in some banks’ commercial real estate (CRE) portfolios.”

    Regional U.S. banks were thrust into the spotlight earlier this year after the collapse of Silicon Valley Bank and Signature Bank triggered a run on deposits across the sector. The panic eventually spread to Europe and resulted in the emergency rescue of Swiss giant Credit Suisse by domestic rival UBS.

    Though authorities went to great lengths to restore confidence, Moody’s warned that banks with substantial unrealized losses that are not captured by their regulatory capital ratios may still be susceptible to sudden losses of market or consumer confidence in a high interest rate environment.

    The Federal Reserve in July lifted its benchmark borrowing rate to a 5.25%-5.5% range, having tightened monetary policy aggressively over the past year and a half in a bid to rein in sky-high inflation.

    “We expect banks’ ALM risks to be exacerbated by the significant increase in the Federal Reserve’s policy rate as well as the ongoing reduction in banking system reserves at the Fed and, relatedly, deposits because of ongoing QT,” Moody’s said in the report.

    “Interest rates are likely to remain higher for longer until inflation returns to within the Fed’s target range and, as noted earlier, longer-term U.S. interest rates also are moving higher because of multiple factors, which will put further pressure on banks’ fixed-rate assets.”

    Regional banks are at a greater risk since they have comparatively low regulatory capital, Moody’s noted, adding that institutions with a higher share of fixed-rate assets on the balance sheet are more constrained in terms of profitability and ability to grow capital and continue lending.

    “Risks may be more pronounced if the U.S. enters a recession – which we expect will happen in early 2024 – because asset quality will worsen and increase the potential for capital erosion,” the analysts added.

    Though the stress on U.S. banks has mostly been concentrated in funding and interest rate risk resulting from monetary policy tightening, Moody’s warned that a worsening in asset quality is on the horizon.

    “We continue to expect a mild recession in early 2024, and given the funding strains on the U.S. banking sector, there will likely be a tightening of credit conditions and rising loan losses for U.S. banks,” the agency said.

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