To date, the reporting season in the SMI has been rather slow. Roche and Nestlé disappointed the markets almost simultaneously in mid-October. A few days later, Novartis exceeded expectations and raised its earnings forecast for 2023. Nevertheless, the reaction of investors was rather subdued. Missed sales expectations for two cancer drugs were cited as a downer of the interim report. After the SMI heavyweight trio, the company with the fourth-largest share in the leading index will speak out next week. On November 7, UBS will publish its results for the third quarter of 2023, when the strong share price performance of the big bank in recent months will come under scrutiny. With a plus of 24%, the UBS share leads the 2023 performance ranking for the SMI to date.
With this development, the domestic institution also outperforms the European sector by a long way. The outperformance is directly related to the banking quake that hit Switzerland at the beginning of the year. Credit Suisse was pretty much faltered by it. Supported by the government and the SNB, UBS "had" to take over its stumbling competitor. Just how favorably it got its way became clear in the balance sheet for the second quarter of 2023. UBS posted a record operating profit (pre-tax profit level) of USD 29.239 billion, of which USD 28.925 billion was attributable to a book gain or "badwill" from the CS acquisition. During the presentation of the figures, CEO Sergio Ermotti, who has returned to the top of the Group, described the bank merger as one of the largest and most complex in history. "We are wasting no time in delivering value for all stakeholders," he said in late August.
Reducing costs, leveraging economies of scale and regaining trust - those are the top banker's priorities. Before its near-collapse, clients had been withdrawing their capital from Credit Suisse on a grand scale. In the fourth quarter of 2022 alone, Wealth Management recorded outflows of close to USD 100 billion. Since then, the situation has gradually improved. In the first two months of the third quarter of 2023, the CS division was able to stop the outflow of funds (see chart). As far as the operating result of the entire Group is concerned, Sergio Ermotti is aiming for roughly break-even for the past quarter. In the entire second half of 2023, pre-tax profit is expected to be positive. In addition to the latest results and the outlook, investors and analysts are likely to take a close look at the status of the planned integration of Credit Suisse during the presentation of the new month's results.
UBS shares have been somewhat out of step with the broader market in recent weeks - down more than 6% on a one-month basis. Even if the interim report and accompanying commentary fail to propel the large cap anew, the softcallable barrier reverse convertible (BRC) offers an attractive yield. Quarterly, this CHF denominated new issue counts a coupon of 9% p.a.. The barrier is a low 59% of the initial level. As long as UBS does not reach or fall below this level during the term, the issuer will repay the nominal in full. Otherwise, the investment would be exposed to the price risk of the underlying. Please note the soft callable feature. It allows an early termination and redemption of the BRC. Leonteq Securities can make use of this option for the first time after six months and thereafter quarterly.
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