UBS Shares Slide As Earnings Miss Darkens Outlook; CEO Warns 2024 Will Be "Pivotal"

UBS shares in Zurich fell nearly 3% after the Swiss lender's fourth-quarter earnings fell short of Wall Street's expectations, even as plans to increase its dividend per share and reinstate share buybacks this year. 

The Zurich-based bank reported a net loss of $279 million for the fourth quarter, its second straight quarterly loss since its emergency acquisition of rival Credit Suisse. However, analysts surveyed by LSEG were expecting a wider net loss of $372 million.

Recall last March, during the regional bank meltdown in the US, across the Atlantic, Swiss authorities orchestrated UBS to takeover Credit Suisse for $3 billion to avert a much larger global banking crisis. This deal was the largest of its kind, turning UBS into a $1.7 trillion giant overnight.  

UBS said Tuesday that it forecasts deeper cost-cutting by the end of 2026, to the tune of $13 billion - $3 billion more than it stated six months ago. 

The savings will provide the "necessary capacity for reinvestment to reinforce the resilience of our infrastructure as we absorb Credit Suisse and to drive sustainable growth by investing in talent, products, and services," the bank said.

Since the takeover, UBS CEO Sergio Ermotti declared the first phase of the integration between the two banks is complete. He said progress over the next three years would not be "measured in a straight line."

"As we move to the next phase of our journey, we will focus on restructuring and optimizing the combined businesses. While our progress over the next three years will not be measured in a straight line, our strategy is clear," Ermotti said. 

Despite the resumption of a billion dollars in share buybacks in the second half, frozen since the emergency takeover, and plans to increase the dividend per share of $0.70, up 27% year-on-year, fourth-quarter results overshadowed any optimism with shares falling as much as 2.9% in Zurich. 

Earlier, Ermotti joined Bloomberg TV. He said, "One thing we need to do is be willing to sacrifice a little bit of topline growth in order to improve the returns of our financial resources," adding, "2024 will be a 'pivotal year." 

In a separate interview, discussing Wall Street analysts' perspectives on the earnings reports, Morningstar Equity Analyst Johann Scholtz shared with CNBC that given various costs associated with the integration, investors will look past the headline figures in UBS earnings and focus on more fundamental indicators for the next few years: 

"UBS has guided that they are looking only towards 2027 before we are really going to arrive at the situation where all of the accounting noise will be out of the results, but I think there are some other numbers that we can look at that give us a good indication of the underlying health of the business," Scholtz said. 

Courtesy of Bloomberg, here's what other analysts are saying: 

JPMorgan (overweight)

• Analyst Kian Abouhossein says results weaker on higher costs, but puts emphasis on targets and path to develop bank into a wealth management powerhouse
• IB needs to perform as it now operates at a loss, likely to be profitable in 1Q 
• Reiterates UBS as top pick

RBC (outperform)

• Analyst Anke Reingen says results disappointed on costs, but target of higher gross savings out to 2026 should provide some comfort that spending can remain under control
• Message on capital distributions positive
• Reiteration of 2026 exit RoCET of 15% is not in consensus (at 13%) nor in share price, so it provides upside potential for shares

KBW (underperform)

• Results were disappointing, while buyback intentions also underwhelmed as consensus is already at level intended by bank, analyst Tom Hallett writes in a note
• RoCET1 target for 2028 is welcome, but remains many years away
• Today's update may fail to impress relative to high expectations 
• 2024 to be a challenging year

Citi (buy)

• Focus to be on new targets, capital return, analyst Andrew Coombs writes
• Consensus earnings likely to move down for 2024-2025, unchanged for 2026
• Higher capital return should be enough to reassure Tuesday

Meanwhile, in the US, regional banks have been tumbling again...