UBS shares rise 3.5% as market focuses on strong underlying profit

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 added 3.5% in early trade as a result.

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:

"We are executing on the integration of Credit Suisse at pace and have delivered underlying profitability for the Group in the first full quarter since the acquisition. Our clients have continued to place their trust and confidence in us, contributing to strong inflows across wealth management and our Swiss franchise," CEO Sergio Ermotti said in a statement.

"We are optimistic about our future as we build an even stronger and safer version of the UBS that was called upon to stabilize the financial system in March and one that all of our key stakeholders can be proud of."

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."

Citi concluded that Tuesday's report was "overall a good set of results" and reiterated its Buy/High Risk rating.

UBS completed its takeover of its stricken domestic rival in June and announced in August that it had ended a 9 billion Swiss franc loss protection agreement and a 100 billion Swiss franc public liquidity backstop that were put in place when the emergency rescue was agreed in March.

The bank's shares soared to their highest point since late 2008 in August after its second quarter earnings results reported a $28.88 billion net profit as a result of negative goodwill on the Credit Suisse acquisition.

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 ($3.33 billion) to acquire Credit Suisse in March, in a deal mediated by Swiss authorities to prevent the collapse of the storied but scandal-plagued lender.

The stock price has since moderated slightly, but remains up more than 27% on the year.

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.