Jamie Dimon, chairman and CEO of JPMorgan Chase, at the U.S. Capitol for a lunch meeting with the New Democrat Coalition in Washington, D.C., June 6, 2023.
Nathan Howard | Bloomberg | Getty Images
JPMorgan Chase is scheduled to report third-quarter earnings before the opening bell Friday.
Here’s what Wall Street expects, according to analyst estimates compiled by LSEG, formerly known as Refinitiv
Earnings per share: $3.96
Revenue: $39.65 billion
JPMorgan will be watched closely for clues on how the industry fared amid surging interest rates and rising loan losses.
While the biggest U.S. bank by assets has navigated volatile rates adeptly so far this year, the situation has caught several peers off guard, including a trio of midsized lenders that collapsed after deposit runs.
Bank stocks plunged last month after the Federal Reserve signaled it would keep interest rates higher for longer than expected to fight inflation amid unexpectedly robust economic growth. The 10-year Treasury yield, a key figure for long-term rates, jumped 74 basis points in the third quarter. One basis point equals one-hundredth of a percentage point.
Higher rates hit banks in several ways. The industry has been forced to pay up for deposits as customers shift holdings into higher-yielding instruments like money market funds. Rising yields mean the bonds owned by banks fall in value, creating unrealized losses that pressure capital levels. And higher borrowing costs tamp down demand for mortgages and corporate loans.
Banks including JPMorgan have also been setting aside more funds for anticipated loan losses.
Wall Street may provide little help this quarter, with investment banking fees likely to remain subdued and trading revenue expected to be flat or down slightly.
Finally, analysts will want to hear what CEO Jamie Dimon has to say about the economy and his expectations for the banking industry. Dimon has been vocal in his opposition against proposed increases in capital requirements.
Shares of JPMorgan have climbed 8.7% year to date, far outperforming the 19% decline of the KBW Bank Index.
Market Movers rounded up the latest reactions on Exxon Mobil from investors and analysts. The pros, including Jim Cramer , discussed the massive U.S. oil and gas producer after the company agreed to buy its shale rival Pioneer Natural Resources in an all-stock deal for $59.5 billion. This mega-merger deal is expected to close in the first half of 2024. Scott Sheffield, CEO of Pioneer Natural Resources, and Exxon Mobil CEO Darren Woods both joined CNBC on Wednesday morning to talk about the merger and what to expect next year after its completion. Exxon Mobil stock dipped 3.6% Wednesday. Pioneer is held in Cramer’s Charitable Trust portfolio.
Jamie Dimon, Chairman of the Board and Chief Executive Officer of JPMorgan Chase & Co., gestures as he speaks during an interview with Reuters in Miami, Florida, U.S., February 8, 2023.
Marco Bello | Reuters
JPMorgan Chase CEO Jamie Dimon says geopolitics after Russia’s invasion in Ukraine is the biggest risk, larger than high inflation or a U.S. recession.
Global markets have taken a hit over the past week, as the U.S. Federal Reserve signaled that interest rates will likely remain higher for longer, in order to bring inflation sustainably back down to its 2% target.
Speaking to CNBC TV-18 in India on Tuesday, Dimon said people should “be prepared for higher oil and gas prices, higher rates, as a matter of just being prepared,” but that the U.S. economy will likely get through any turbulence. However, the war in Ukraine has polarized global powers and shows no sign of abating.
“I think the geopolitical situation is the thing that most concerns me, and we don’t know the effect of that in the economy,” he added.
“I think that the humanitarian part is far more important. I think it’s also very important for the future of the free democratic world. We may be at an inflection point for the free democratic world. That’s how seriously I take it.”
Further negative pressure on markets in recent months has come from a slowdown in the Chinese economy, driven in large part by weakness in its massive property market.
Asked about the potential impact of this slump on the long-term prospects for China and the global economy, Dimon again suggested that Eastern Europe was the actual epicenter of risk, with the war in Ukraine straining relationships between economic superpowers.
“Far more important to me is the Ukraine war, oil, gas, food migration — it’s affecting all global relationships — very importantly, the one between America and China,” Dimon said.
“I think America takes this very seriously, I’m not quite sure how the rest of the world does. You have a European democratic nation invaded under the threat of nuclear blackmail. I think it’s been a good response, but it’s going to affect all of our relationships until somehow the war is resolved.”
China and India have attempted to maintain a neutral stance on the war and position themselves as potential peacemakers, utilizing the closer ties with Russia demonstrated by the BRICS alliance. Beijing has submitted a peace plan proposal to resolve the conflict in Ukraine, which has so far failed to gain traction.
This placed the world’s two most populous countries somewhat at odds with the U.S. and Europe, which have supplied Ukraine with weapons and financial support in the belief that only a Ukrainian victory will restore international order.
“India is going its own way. They’ve made their priorities quite clear about national security and what that means,” Dimon said.
“I’m an American patriot, so governments are going to set foreign policy, not JPMorgan, but I think Americans should stop thinking that China is a 10-foot giant. Our GDP per person is $80,000, we have all the food, water and energy we need, we’ve got the unbelievable benefits of free enterprise and freedom.”
The Wall Street titan added that renewed U.S. engagement with China on issues such as trade and national security was positive, and that he would like to see more of it to rebalance the trade and investment relationship between Washington and Beijing, even if that caused a “little bit of unravelling.”
“But it’s not just America, every country is relooking at its net. What is national security? Do I have reliant energy lines? Do I need semiconductors from China? Where do I get my rare earths from? Ukraine woke everyone up to that and that’s a permanent state of affairs now,” Dimon said.
Asked if geopolitics was the No. 1 risk facing the world today, Dimon responded, “absolutely.”
“We have dealt with inflation before, we dealt with deficits before, we have dealt with recessions before, and we haven’t really seen something like this pretty much since World War II,” he added.
Market Movers rounded up the latest reactions on Nike from investors and analysts. The pros discussed the sports apparel retailer after Jefferies lowered its call on the stock from buy to hold. The analyst behind the call, Randal Konik, also lowered Nike’s price target by $40 to $100 . The firm’s recent consumer survey signaled that there will likely be a slowdown in spending as federal student loan payments ramp back up in October. These repayments had been paused since March 2020 as a Covid-era relief measure. Nike closed down 0.3% Monday. The company is set to report earnings Thursday.
The Russell 1000 Growth Index has climbed down from its year-to-date highs, which Citi believes has set up a “buy growth on a pullback” opportunity. The broader growth leadership index is up 25% in 2023 on a total return basis and peaked at 34% on July 19. Since then, the index has pulled back more than 6%, with significant underlying single-stock dispersion, according to strategist Scott Chronert. Almost two-thirds of the stocks in the index have fallen 10% or more from their 2023 highs, with one-third of the names more than 20% below their year-to-date peaks. “The implication is that there has been more single-stock pressure under the surface than index price action would suggest,” Chronert wrote in a note from Friday. “Essentially, we think there is an attractive medium-term setup for Growth as we should have a decent margin of safety for fundamentals.” Citi screened for growth names to consider on a pullback. The stocks below met the following criteria: A buy rating from the firm. At least 75% of market cap assigned to growth-style per Russell. Down 10% or more from year-to-date highs (after March 31). Consensus free cash flow per share estimates above March 31 levels. FY5 free cash flow per share greater than or equal to market-implied estimates. Take a look at some of the names on the list and where analysts see the stocks headed next. Defense and aerospace company Lockheed Martin is down 18% from its 2023 high in April. In contrast, the company’s free cash flow per share consensus estimate has risen nearly $5 since the end of March. The company has struggled with supplier issues for its aircraft and reduced its full-year delivery forecast for F-35 jets earlier in the month. Shares have fallen 15% year to date. Although image-sharing company Pinterest has had a modest rally following its recent investor day, shares are still down 14% from their year-to-date highs. The stock is still up 8.8% in 2023. The company’s management is forecasting revenue expansion of about 8% this year after a slowdown in 2022 and 2023. The full-year free cash flow per share estimate has gained $2.03 since the end of the first quarter. Chipmakers Nvidia and KLA also made the list. Nvidia, which has surged more than 188% year to date, is now down 18% from its highest level in late August. While Nvidia’s monumental year-to-date rally may have some suspecting the stock is overbought, its average price target suggests shares could rally an additional 47.7% from Friday’s close. Nearly 95% of analysts covering the stock rate it a buy. Dutch-based KLA, meanwhile, has declined 14% from its 2023 peak. The stock is still more than 20% higher for the year. — CNBC’s Michael Bloom contributed to this report.
A combination file photo shows Wells Fargo, Citibank, Morgan Stanley, JPMorgan Chase, Bank of America and Goldman Sachs.
Reuters
The financial sector is making a comeback, and it looks to stay there.
Club names Morgan Stanley (MS) and Wells Fargo (WFC), in particular, have perked up recently. Still, we think shares have more room to run.
Banks have been rallying since their recent lows in late August on signs of life in the long-dormant IPO market and hopes for more mergers and acquisitions activity, which could boost investment banking services for Wall Street giants like Morgan Stanley.
It was San Francisco-based Instacart‘s (CART) turn on Tuesday to go public. Shares gained more than 30% on their first day of trading, one day after the newly Nasdaq-listed company priced its initial public offering at the top of the expected range at $31 per share. Venture capital firm Sequoia is Instacart’s biggest investor, with a fully diluted stake of 15%.
The debut of the grocery delivery service came less than a week after U.K. semiconductor designer Arm Holdings (ARM) was listed on the Nasdaq in a blockbuster IPO. Shares closed their first session up nearly 25% last Thursday for a market value of more than $63 billion. However, Softbank-owned Arm has been on a sharp, three-session losing streak — and on Tuesday, it was trading less than 8% above its $51-per-share offer price.
Key Points
Club names Wells Fargo and Morgan Stanley still have room to run higher.
Those stocks and the banking industry overall have experienced a boost recently as the sluggish IPO market of the past two years heats up.
Banks do face some risk going forward in the form of proposed tighter regulations in response to the March SBV failure.
Morgan Stanley did not have a hand in either of those IPOs, but it is a lead book runner on the upcoming IPO of marketing automation company Klaviyo, which disclosed in a filing Monday an increase in the offer range, targeting a fully diluted market valuation of $9 billion. E-commerce company Shopify (SHOP) owns about 11% of Klaviyo shares.
The outlook for the industry overall seems to be turning the corner since a mini-banking crisis erupted earlier this year following the March collapse of Silicon Valley Bank. The S&P 500 Financials sector index, while up about 1% year to date, has gained more than 12% since its 2023 lows in March. The overall S&P 500 index has gained 15% year to date and a little less than that from mid-March levels. (We recently did an in-depth report on all 11 sectors of the S&P 500 and where our 35 Club stocks fit in.)
Financials sector vs. S&P 500 year-to-date
The crisis of confidence in the banking industry ensued after SVB failed to manage risk and hedge for interest rates as the Federal Reserve continued to raise borrowing costs earlier this year. Other regionals such as Signature shuttered as well, accelerating the market selloff. First Republic was seized by federal regulators and sold for a song to JPMorgan. Tremors spread abroad, too, with Swiss bank UBS taking over its ailing rival Credit Suisse. Big banks, like Morgan Stanley and Wells Fargo, were never in any trouble but were painted with a broad brush of industry distrust.
Several months later, however, it seems like investors want back into big bank names again. Morgan Stanley and Wells Fargo were up 6.2% and 5% in the past five days, respectively, as of Monday’s close. However, those stocks, which were lower in Tuesday’s broader market sell-off, and the rest of the industry do face some uncertainty going forward.
Financial regulators are cracking down on banks with at least $100 billion of assets by increasing capital requirements in a bid to curb the risk of future insolvency issues. In response to the failure of SVB, regulators unveiled proposed changes in July that would require more banks to include unrealized losses and gains from securities in their capital ratios.
Still, Wells Fargo and Morgan Stanley are both well capitalized and haven’t been at risk of a run on deposits, according to the Fed’s latest stress test results. These new rules shouldn’t hit their bottom lines either, but there’s an argument to be made that an increase in capital requirements may weigh on revenue streams from net interest income as lending conditions tighten.
However, Chris Kotowski, senior research analyst at Oppenheimer told CNBC that if implemented, firms would adjust to the new regulations.
“Banks will adapt to capitals over time, but if there’s a sudden increase in capital requirements, you know, in the quarter or two or a year after, they can’t necessarily adjust to that instantly, but they will adjust,” Kotowski said in an interview. “If the capital charge on a certain kind of trading inventory is suddenly 20% more, all the market makers in that trading category are going to want to hold 20% less capital.”
Morgan Stanley YTD
During last week’s Barclays Financial Conference, management at Morgan Stanley said that capital markets are set to improve next year, with 2024 likely being a much better year for the economy as well. This could boost investment banking more broadly because companies will feel less inclined to preserve capital and more confident in going public or making acquisitions.
“We are more confident now than any time this year about an improved outlook for 2024,” Morgan Stanley Head of Investment Management Dan Simkowitz said at the event. “It’s clear to us now that the first half of the second quarter was probably the low point in sentiment around capital markets and M&A.” For context, global M&A value declined by 44% in the first five months of 2023, according to analytics firm GlobalData.
Simkowitz added that Morgan Stanley is seeing “improved execution quality across the capital markets and M&A,” leading him to believe the bank is “in the midst of a sustainable recovery.”
An upbeat economic outlook, along with a pickup in M&A and IPO activity, could certainly boost a dormant and crucial part of Morgan Stanley’s business. Due to the volatile nature of capital markets, Morgan Stanley has been putting a heavier focus recently on wealth management and other recurring fee-based revenue.
Wells Fargo YTD
Wells Fargo doesn’t stand to benefit quite as much as Morgan Stanley on a pickup in investment banking. However, management’s remarks at last week’s Barclays conference are showing signs of continued recovery. Wells Fargo Chief Financial Officer Michael Santomassimo said the macroeconomic picture is “much better than people would have expected at this point.”
“You still have a resilient employment picture. On the consumer side, the activity is still really good. People are out spending money. You see debit card spend up a couple of percent from what it was a year ago through the quarter,” according to Santomassimo. “You see strong growth in credit card spend, double-digit growth.”
Wells Fargo’s management reiterated the bank’s solid forward guidance while demonstrating an improving efficiency ratio as they continue to cut costs through layoffs and various restructuring plans. “A lack of bad news turned out to be good news,” CNBC Investing Club Director of Portfolio Analysis Jeff Marks said during last Thursday’s Morning Meeting.
The recent comments from Wells Fargo show further progress in the bank’s multi-year turnaround plan after the Fed imposed an asset cap on the firm in 2018. We see the timing of the financial regulator’s decision to lift the asset cap as a “when, not if” scenario, which would allow the bank to not only increase its balance sheet but also generate more profits.
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The recent pullback in First Solar shares has created an attractive entry point, according to BMO Capital Markets. Analyst Ameet Thakkar upgraded shares to outperform from market perform. He maintained his price target of $237 on shares, which suggests 39% returns from Wednesday’s close. “FSLR stock has declined by an unwarranted degree following its recent Analyst Day in our view. As highlighted in our Analyst Day recap note earlier this week, we believe consensus 2024-26 estimates are too low, but remain focused on 2027+ earnings power where FSLR is not fully sold out,” Thakkar said in a Thursday note. “However, at its current share price of $170.50, and even using our conservative assumptions for declines in ASPs and utilization rates, we see attractive risk/reward on “normalized” post 2026 adj. EBITDA,” he continued. Shares of the solar company have tumbled 18% since its second-quarter earnings call. By comparison, the S & P 500 has declined 3% over the same period. Underperformance has accelerated since the company’s positive analyst day on Sept. 7, with the stock losing about 5% since. BMO views First Solar as a winner under the Inflation Reduction Act, which it believes will help the company’s earnings power. A backlog will continue to grow thanks to the IRA, as developers try to secure U.S.-produced solar modules — notably, First Solar is the only significant domestic producer, Thakkar noted. “FSLR’s current backlog, ASPs, and PTC leverage already offered substantially better visibility than most of its peers. However, we now appear to have more clarity on 2024-26 earnings, upside to consensus, and another sign progress on 2027+ continues likely at favorable pricing,” the analyst said. Shares rose 2% Thursday before the bell. The stock is up almost 14% in 2023. —CNBC’s Michael Bloom contributed to this report.
Market Movers rounded up the latest reactions on Apple from investors and analysts. The pros, including Jim Cramer , discussed the smartphone maker one day after it unveiled the new iPhone 15, the latest Apple Watch and other products. Apple did not raise prices on its latest iPhone models in the U.S., but hiked them in China, Japan and India. China accounts for nearly 20% of total Apple sales . Morgan Stanley reiterated its investment opinion on Apple as overweight, while Wedbush raised its price target to $240 per share. Apple closed the day down 1.2%. The stock is currently held in Cramer’s Charitable Trust portfolio.
German shoemaker Birkenstock has filed for an initial public offering in New York, becoming the latest European company to choose the United States as the placeto raise money on the stock market.
The iconic footwear brand said in a filing to the US Securities and Exchange Commission Tuesday that it planned to list on the New York Stock Exchange under the symbol “BIRK.” It didn’t disclose its target share price or the proposed date of the listing.
The Financial Times, citing unnamed sources familiar with the matter, reported Tuesday that Birkenstock was seeking a valuation of more than $8 billion.
In its filing, the company said revenue in the six months to the end of March had risen 19% from the same period in the 2021-22 financial year but that its net profit had fallen 45%. Birkenstock said inflationary pressures had pushed up the cost of labor and materials.
The family business traces its origins back to 1774 when church archives mention Johannes Birkenstock, who worked as a cobbler in Langen-Bergheim, Germany.
In 2021, the Birkenstockfamily soldmost of the company to L Catterton, a private equity firm backed by LVMH — the owner of luxury brands such as Tiffany & Co. and Dior, with brothers Christian and Alex Birkenstock retaining a minority stake.
The planned IPO marks another milestone for the shoemaker, which joins the ranks of high-profile European companies seeking a public offering across the pond rather than at home. British chip designer Arm is gearing up for a blockbuster IPO on the Nasdaq this week.
The listings come after an 18-month slump in the IPO market. As the world’s major central banks have jacked up interest rates to combat inflation, the appetite among investors for riskier assets has waned. US grocery delivery firm Instacart has also revealed plans to list on the Nasdaq in the near future, albeit at a significant discount to recent valuations.
“It’s safe to say the US is leading the [IPO] revival at this stage, and other financial centers, most notably London, have a lot of work to do to compete better going forward,” Craig Erlam, senior market analyst at Oanda, told CNN.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, added in a note Wednesday: “Birkenstock’s step shows that the IPO engine is whirring back to life after an 18-month downturn. Hopes that the end of the interest rate hiking cycle is in sight [are] also driving more confidence.”
Market Movers rounded up the latest reactions on Goldman Sachs from investors and analysts. The pros, including Jim Cramer , discussed the investment bank after CEO David Solomon addressed Wall Street’s concerns about his company in an interview with CNBC . He responded to recent negative news reports on his leadership style at the firm. Goldman’s CEO also said he remains optimistic for capital market performance with a slew of tech initial public offerings looming. The stock ended Friday with a 1.1% gain, but it’s down more than 5% for the year.
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.”
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 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.”
Bruno Verstraete, partner at Lakefield Partners, discusses the positive market reaction to UBS’ massive second-quarter profit and announcement that it will fully absorb Credit Suisse’s Swiss banking division.
UBS CEO Sergio Ermotti speaks to CNBC following the bank’s first earnings report since its acquisition of stricken rival Credit Suisse was completed in June. UBS posted a $29 billion net profit as a result of negative goodwill from the deal.
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.
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.
“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.
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.
Market Movers rounded up the best reactions from investors and analysts on Target . The pros, including Jim Cramer , talked about the retailer’s mixed second-quarter financial results . Target’s earnings beat analysts’ expectations, but sales fell short. The company also cut its full-year sales and profit guidance as it tries to win over more cost-conscious customers. The retailer also shared that backlash toward its Pride merchandise, as well as nationwide theft during the quarter, hurt its bottom line. Target shares had touched a 52-week low Tuesday. The stock surged during premarket trading Wednesday and ended the session with a nearly 3% gain.
Dmitry Muratov, one of Russia’s best-known journalists, has been added to the country’s list of foreign agents, less than two years after the Kremlin praised the principled reporting that saw him awarded a Nobel Peace Prize.
Muratov, the former editor of now-shuttered liberal newspaper Novaya Gazeta, was included in an update Friday evening to the Russian Ministry of Justice’s register of journalists, politicians and activists that Moscow claims are acting on behalf of hostile states.
The designation of foreign agent, which has been repeatedly used on critics of Russian President Vladimir Putin and opponents of his war in Ukraine, means that Muratov will have to adhere to strict rules on political activity. It also bars him from engaging in public life. Any mention of him in Russian media or social networks must reference his status.
According to Human Rights Watch, “in Russia, the term foreign agent is tantamount [to] spy or traitor,” and has been used “to smear and punish independent voices.”
The decision to accuse Muratov of being under undue influence from abroad flies in the face of the Russian state’s own previous assessment of his journalism. After Muratov won the Nobel Peace Prize in 2021, Kremlin Press Secretary Dmitry Peskov offered his congratulations and said the long-time editor “consistently works according to his own values, is committed to those values, is talented, and is brave.”
Muratov was awarded the Nobel Peace Prize jointly with Filipino-American reporter Maria Ressa for “their efforts to safeguard freedom of expression, which is a precondition for democracy and lasting peace.”
Since the start of its increasingly catastrophic war in Ukraine, Russia has all but eliminated the country’s independent media outlets, imposing harsh penalties for those considered to be “discrediting the Russian armed forces.”
Many Russian journalists have been forced to move abroad to continue their work. Muratov’s Novaya Gazeta was forced to cease operations in Russia in April 2022, weeks after the start of the war and has since been forcibly closed by the state, though it has continued to publish online.
Moscow has also detained Wall Street Journal reporter Evan Gershkovich since March 29 on espionage charges, for which no evidence has been presented. U.S. President Joe Biden has branded the arrest, the first of an accredited correspondent on spying allegations since the end of the Cold War, “totally illegal.”
In August, POLITICO reporter Eva Hartog was expelled from Russia after she was refused an extension to her visa.
Earlier this week, the Nobel Foundation faced criticism from both Swedish and Ukrainian politicians after it decided to invite Russian ambassadors to attend this year’s awards ceremony.
Market Movers rounded up the best reactions from investors and analysts on Eli Lilly . The experts, including Jim Cramer , discussed the drugmaker after it reported second-quarter revenue and earnings Tuesday that beat Wall Street estimates. The company also raised its full-year guidance as quarterly profit soared 85% from the same period last year. Shares of Eli Lilly hit an all-time high during intraday trading, perhaps also getting a boost from a Novo Nordisk trial. The study found Novo Nordisk’s obesity drug Wegovy, which shares some similarities with Lilly’s Mounjaro, cut the risk of heart disease in participants by 20%. Eli Lilly’s stock finished the day about 14.9% higher. LLY is currently held in Cramer’s Charitable Trust portfolio.
Several Wall Street banks were hit with substantial fines by two regulatory agencies on Tuesday for utilizing “off-channel” messaging services and failing to properly preserve the communications wherein deals, trades, and other business were discussed.
The Securities and Exchange Commission (SEC) is imposing fines totaling $289 million across nine firms, while the Commodity Futures Trading Commission (CFTC) is imposing $260 million in fines — resulting in a combined total penalty of $549 million.
The agencies found that employees frequently used personal devices and platforms like iMessage, WhatsApp, and Signal to discuss business matters, according to the complaint, but failed to retain most of the communications, violating securities laws, the SEC press release noted.
The SEC has taken action against 10 broker-dealer firms and one dually registered broker-dealer and investment adviser for “longstanding failures” to “preserve electronic communications” that occurred when discussing business. The SEC’s investigation revealed widespread and prolonged use of unofficial communication channels at all 11 firms.
Among the fined firms, Wells Fargo and its affiliates (Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network) agreed to pay $125 million, while BNP Paribas Securities and SG Americas Securities will pay $35 million each. Other firms facing fines are BMO Capital Markets Corp. and Mizuho Securities USA ($25 million each), Houlihan Lokey Capital ($15 million), Moelis & Company and Wedbush Securities ($10 million each), and SMBC Nikko Securities America ($9 million).
The SEC stresses that adhering to recordkeeping regulations is crucial for safeguarding investors and maintaining well-functioning markets.
“Today’s actions stem from our continuing sweep to ensure that regulated entities, including broker-dealers and investment advisers, comply with their recordkeeping requirements, which are essential for us to monitor and enforce compliance with the federal securities laws,” Sanjay Wadhwa, SEC deputy director of enforcement, said in a statement. “Recordkeeping failures such as those here undermine our ability to exercise effective regulatory oversight, often at the expense of investors.”
The 11 firms involved admitted to violating “crucial requirements” and are taking steps to prevent future violations, Wadhwa added.
Gurbir S. Grewal, director of the SEC’s division of enforcement, advises firms to self-report and rectify to avoid harsher consequences.
“So here are three takeaways for those firms who haven’t yet done so: self-report, cooperate and remediate. If you adopt that playbook, you’ll have a better outcome than if you wait for us to come calling.”
Paul Markham, head of global equities at Newton Investment Management, discusses the fallout from Italy’s surprise announcement of a 40% windfall tax on excess banking profits.
