As the country’s most important bank, UBS shows what Covid really means. Business in the Swiss home market slumped at number 1.
From April to the end of June, UBS generated significantly less revenue in its key personnel and corporate banking division, while at the same time it had to make high provisions for loans at risk.
However, wages and other expenses remained high. Together, this led to a downturn in profits: minus 41 percent.
The home market, which in the past was the guarantor of increasing profits, does not matter in a cross-comparison.
All other divisions – global wealth management, global asset management, the investment bank – were able to hold or grow. The investment bank with 43 percent clearly.
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UBS therefore has a new problem child. It is Switzerland of all places: its home, the anchor of the bank.
The reason is the crisis caused by the virus. UBS had to make massively higher loan provisions in the past second quarter, for which the bank was accountable earlier today.
“The main reason for the decline in pre-tax profit was value adjustments for credit risks in the amount of CHF 104 million,” writes UBS on the course of business in the Switzerland division.
“This was mainly due to losses resulting from the updating of macroeconomic assumptions (namely updated GDP and unemployment data and real estate prices for Switzerland) and expert assessments.”
The reference to the “real estate prices for Switzerland” makes you listen. The big bank apparently sees emerging dangers on the front of the house.
UBS is the leading bank for mortgages behind Raiffeisen. Now she’s on the brakes. It writes off loans at risk and has to be careful with new mortgages.
The crisis in Switzerland has only just begun. This is evident from the slump in UBS’s domestic business.
In addition to the mortgages, the main thing is the many corporate loans. UBS has corrected the forecasts for the economy. It assumes a shrinkage.
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This leads to skyrocketing credit risks among corporate customers. The outstanding loans must be written off.
It shows how strongly UBS – and also CS, which will publish its figures next week – is dependent on the federal Covid bailout package.
Without the taxpayer’s guarantees, UBS would probably have to write off a lot more Swiss corporate loans or make provisions for them.
The sums involved are made clear by statements in today’s UBS quarterly report.
“By July 17, 2020, UBS had processed more than 24,000 applications as part of this program and committed a total of CHF 2.7 billion in loans of up to CHF 0.5 million, which are 100% guaranteed by the Confederation . “
“In addition, there are loans of CHF 0.5 to 20 million in the amount of CHF 0.5 billion, which are 85% guaranteed. So far, CHF 1.5 billion (47%) has been used under this program. ”
In total, the largest Swiss bank has granted 3.2 billion “free” loans – backed by tax payer.
What would have happened to these billions of open risks without the federal rescue package? How much would UBS have to write down on it?
The billion-dollar dimension shows what the Covid 19 credit line from Bern is all about: a rescue package for the banks.
The UBS meanwhile wraps itself in the Samaritan cloak. Maintain the “obligation to donate any profits from the government loan program in favor of COVID-19 relief measures,” the bank emphasizes.
What sounds good is more marketing than real solidarity. Because the bank immediately states: “As communicated earlier, it does not expect such profits in 2020.”
UBS does not officially want to do business with the large credit line financed by the taxpayer. Nonetheless, it earns at least 75 basis points from the Swiss franc’s rescue loans: for every franc it grants.
The difference between zero and minus 75 basis points is what the refinancing with the SNB “costs”. UBS uses the margin to finance wages and bonuses for the crew and management.
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