With Credit Suisse in the grip of a series of debacles, UBS looks poised to shine in the third quarter. 

The question is whether Switzerland wants a national champion, UBS CEO Ralph Hamers said at a recent private gathering when he was asked about a merger between the Swiss bank and its crosstown rival Credit Suisse.

The speculation of an all-Swiss banking merger has arisen following Credit Suisse's difficulties: a $10.1 billion line of Greensill funds imploded in March, followed shortly after that by more than $5 billion in losses in unwinding its Archegos positions. This week, the Swiss bank was hit with a fourfold regulatory action over an $850 million loan to Mozambique, as well as harsh words from its home regulator for spying on top executives.

Market Take

In comparison, UBS can only sparkle – despite having to wait for a key French appeal as well as a preliminary criminal investigation related to Hamers in an ING money laundering scandal the Dutch bank settled in 2018 for $900 million. The divide between the two Swiss champions has deepened, with UBS stock gaining 14 percent thus far this year while Credit Suisse has shed more than 15 percent.

UBS is due to report third-quarter results on Thursday. And the capital market business has boomed at U.S. competitors and European peers which have already reported.

UBS ranked 14th place with $486 million in overall investment banking fees in the three months to September 30, down from tenth a year earlier, according to league table data provided by Refinitiv. Credit Suisse, the stronger investment bank of the two, ranked sixth in the most recent quarter.

Seasonal Slowdown

The Swiss giant's main business, banking the world's wealthy, is typically quieter in the third quarter, due in part to summer holidays in the U.S. and Europe. Following a fulsome first half of the year, the third-quarter contrast may be a stark one.

UBS' pre-tax profit is forecast to dip by one-fifth to $2 billion, according to a consensus of analyst estimates compiled by UBS. The funds in its global wealth business are predicted to to climb a touch to $3.25 trillion, which represents growth of more than 18 percent on the year.

What otherwise might appear to be a boring, predictable result is a virtue when cast against the backdrop of Credit Suisse's problems. UBS' solid business performance affords Hamers the freedom to deliver on promises made in strategic initiatives and other priorities.

Share Buybacks, Cost Cuts

Investors will be focusing on the Swiss bank pledge to buy $600 million of its own stock in the third quarter and its intentions to trim its spending by $1 billion annually, as announced in April. Hamer's somewhat diffusely formulate strategy, also announced in spring, has become clearer in recent weeks. Something is happening in the bank's machine room in IT where it is cutting hierarchies and giving engineers more leeway (German only).

Agile Future

Hamers also recently relayed on Linkedin the rollout of a new agile working model (image below). 

 

UBS does not seem to be particularly stressed by another important decision about its future. Ostensibly, it feels it isn't particularly pressed for time to find a replacement for its chairman, Axel Weber. Even though a replacement is due before the annual general meeting next April.

Spinning Carousel

The search has started, with Egon Zehnder mandated to find the next UBS chairman. The short list apparently includes external candidates that Weber had previously known from his time in central banking circles. Mark Carney, the former head of the Bank of England, and the SNB's Philipp Hildebrand. Another name that gets dropped is that of previous UBS finance chief and somewhat hapless ex-Deutsche Bank head John Cryan.

The carousel of candidates, according to the media, includes Jens Weidmann, who recently resigned as chairman of the Bundesbank. A German headhunter sees his candidacy as realistic when asked. But it seems that Deutsche Bank is also potentially interested. Maybe that will bring out the competitive nature of our potential national champion.

Katharina Bart contributed reporting