Raphael Stevens

UBS on Thursday posted a second-quarter profit of $28.88 billion in its first quarterly earnings since Switzerland’s largest bank completed its takeover of stricken rival Credit Suisse.
UBS said the result primarily reflected $28.93 billion in negative goodwill on the Credit Suisse acquisition. Underlying profit before tax, which excludes negative goodwill, integration-related expenses and acquisition costs, came in at $1.1 billion.
In a separate Thursday filing, the Credit Suisse subsidiary posted a second-quarter net loss of 9.3 billion Swiss francs.

General view of the UBS building in Manhattan on June 5, 2023 in New York City.
Eduardo Munoz Alvarez | View Press | Corbis News | Getty Images

UBS shares reached their highest point since late 2008 during early trade in Zurich on Thursday, after the Swiss banking giant posted a mammoth profit beat and announced thousands of layoffs as it plans to fully absorb Credit Suisse’s Swiss bank.
UBS posted a second-quarter profit of $28.88 billion in its first quarterly earnings since Switzerland’s largest bank completed its takeover of stricken rival Credit Suisse.

Analysts had projected a net profit of $12.8 billion for the three months to the end of June, according to a Reuters poll.
UBS said the result primarily reflected $28.93 billion in negative goodwill on the Credit Suisse acquisition. Underlying profit before tax, which excludes negative goodwill, integration-related expenses and acquisition costs, came in at $1.1 billion.
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 ($3.4 billion) to acquire Credit Suisse in March.
Ermotti told CNBC’s “Squawk Box Europe” on Thursday that the bank is making “very good progress” with its integration plans.
“When people look into those numbers, they will clearly understand that this negative goodwill is the equity necessary to sustain $240 billion of risk-weighted assets and the financial resources to go through a deep restructuring that is necessary at Credit Suisse, because our analysis has proven that the business model was not viable any longer,” he told CNBC’s Joumanna Bercetche.

“Credit Suisse has excellent people, clients, and product capabilities, but the business model was not sustainable any longer and needs to be restructured.”

UBS shares were up 4.9% around an hour into trading.
Here are some other highlights:

CET 1 capital ratio, a measure of bank liquidity, reached 14.4% versus 14.2% in the second quarter of 2022.
Return on tangible equity (excluding negative goodwill, integration-related expenses, and acquisition costs) was 4.3%.
CET1 leverage ratio was 4.8% versus 4.4% a year ago.

Credit Suisse’s Swiss bank to be fully absorbed
Credit Suisse’s stalwart domestic banking unit will be fully integrated into UBS, the group also announced on Thursday, with a merging of legal entities expected to close in 2024.
The fate of Credit Suisse’s flagship Swiss bank, a key profit center for the group and the only division still generating positive earnings in 2022, was a focal point of the acquisition, with some analysts speculating that UBS could spin it off and float it in an IPO.
Ermotti said the bank’s analysis had determined that this is “the best outcome for UBS, our stakeholders and the Swiss economy.”
The integration may prove more controversial in Switzerland because of the possibility of heavy job losses in the process. UBS confirmed on Thursday that the integration of the Swiss bank will result in 1,000 redundancies, beginning in late 2024, while a further 2,000 layoffs are expected due to the wider restructure of Credit Suisse.
The Credit Suisse acquisition was part of an emergency rescue deal mediated by Swiss authorities over the course of a weekend in March. Earlier this month, UBS announced that it had ended a 9 billion Swiss franc ($10.24 billion) loss protection agreement and a 100 billion Swiss franc public liquidity backstop that were put in place by the Swiss government when it agreed to take over Credit Suisse in March.

“Clients will continue to receive the premium level of service they expect, benefiting from enhanced offerings, expert capabilities and global reach,” Ermotti said of the integration of Credit Suisse’s Swiss banking division.
“Our stronger capital base will enable us to keep the combined lending exposures unchanged, while maintaining our risk discipline.”
The bank also announced 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.
UBS delayed reporting its second-quarter results — initially scheduled for July 25 — until after completing the Credit Suisse takeover on June 12.
In the previous quarter, UBS suffered a surprise 52% annual drop in net profit due to a legacy litigation issue relating to U.S. mortgage-backed securities.
UBS shares closed Wednesday’s trade up nearly 30% since the turn of the year, according to Eikon.
In a separate Thursday filing, the Credit Suisse subsidiary posted a second-quarter net loss of 9.3 billion Swiss francs, as it saw net asset outflows of 39.2 billion Swiss francs, with assets under management falling 3% amid a mass exodus of clients and staff.
The Thursday report was Credit Suisse’s last as an independent entity, and showed that, despite the rescue, the loss of client confidence that precipitated the bank’s near-collapse in March has yet to be reversed.

UBS nevertheless noted that this attrition rate was slowing, and the bank will be keen to retain as many Credit Suisse clients and customers as possible, in order to make the colossal merger work in the long run.
UBS’ Ermotti told CNBC on Thursday that both UBS and Credit Suisse had seen an uptick in deposit inflows in the second quarter and in the current one so far, and that this was evidence that clients are “staying loyal.”
For the second quarter, net inflows into deposits for the combined group were $23 billion, of which $18 billion came from Credit Suisse’s wealth management and Swiss bank divisions.
Though Credit Suisse continued to suffer net asset outflows, UBS said that these slowed over the second quarter and turned positive after the acquisition was completed in June.
“Credit Suisse lost around $200 billion during its difficult times in 2022 and 2023, and we are seeing now some of this coming back, and our goal is to try to get back as much as possible. It’s not easy, but it is our ambition,” Ermotti added.
UBS’ flagship global wealth management business received $16 billion in net new money over the three months to the end of June, its highest second-quarter net inflows for over a decade. More

Haitham al-Ghais, secretary-general of the Organization of Petroleum Exporting Countries (OPEC), speaking at the Energy Asia Summit on June 26, 2023.
Bloomberg | Bloomberg | Getty Images

What do toothpaste, deodorant, soap, cameras, computers, gasoline, heating oil, jet fuel, car tires, contact lenses and artificial limbs have in common?
If oil vanished today, these and many other vital products and services that use oil or its derivatives would vanish too. Transportation networks would grind to a halt, homes could freeze, supply chains would crash and energy poverty would rise.

The World Energy Report for 2022, published by the UK-based Energy Institute and consulting firms KPMG and Kearney, noted that fossil fuels constituted 82% of global energy in 2022. This is comparable to OPEC’s latest world oil outlook and represents a similar level to 30 years ago.
Why then do most energy transition debates disregard the critical role that commodities like oil and gas continue to play in improving lives, fostering stability and energy security, as well as related industries’ efforts to develop technologies and best practices to reduce emissions? The scale of the climate change challenge is daunting, but meeting the world’s rising energy demand and mitigating climate change do not have to exist in a vacuum or be at odds with each other.
Rather, the world should act to reduce emissions and ensure that people have access to the products and services they need to live comfortably. Towards these goals, OPEC members are investing in upstream and downstream capacities, mobilizing cleaner technologies and deploying vast expertise to decarbonize the oil industry. Major investments are also being made in renewables and hydrogen capacity, carbon capture utilization and storage — as well as in promoting the circular carbon economy.
The bottom line is that it is possible to invest heavily in renewables while continuing to produce the oil the world needs today and in the coming decades. This approach also contributes to global stability at a time of volatility and is critical given that history shows that energy transitions evolve over decades and take many paths.
Take electric vehicles: Although the Toyota Prius became the world’s first mass-produced hybrid vehicle in the late 1990s, an analysis from the U.S. National Automobile Dealers Association noted that sales of hybrids, plug-in hybrids and battery electric vehicles (BEV) accounted for only 12.3% of all new vehicles sold in the U.S. in 2022.

While the rising popularity of electric vehicles is indisputable, total sales of BEVS also made up only 19% of new car sales in China last year. Similarly, in the EU, vehicles using petrol or diesel still accounted for around half of all car sales in 2022.
Thus, when it comes to the transportation sector – and indeed many other fields – it is clear that it would not be prudent to ignore that billions of people across the globe rely on oil and will continue to do so for the foreseeable future.
This becomes even more pressing when coupled with the investment needed to meet the rising demand for energy, ensure energy security and affordable access, and lower global emissions in line with the Paris Agreement.

Rising demand for energy

The world’s population is growing. OPEC’s World Oil Outlook (WOO) for 2022 sees it increasing by 1.6 billion people through 2045, while United Nations statistics note growth to around 10.4 billion by 2100.
In parallel, OPEC’s estimates that global energy demand will increase by 23% to 2045. Within this, oil demand is projected to increase to around 110 million barrels a day (mb/d). Thus, it is clear that oil will continue to be an essential part of the global energy infrastructure for decades to come. This is in stark contrast to the many proclamations of past decades that the age of oil was over. Indeed, contemporary demand is close to an all-time high and will rise by close to 5 mb/d in 2023 and 2024.
No single form of energy can currently meet expected future energy demand; instead, an “all-peoples, all-fuels and all-technologies” approach is required. As such, OPEC member countries are ready, willing and able to provide the affordable energy needed to cater towards these future energy needs, all the while reducing their emissions and helping eradicate energy poverty in doing so.
The UN notes that more than 700 million people still lack access to electricity and almost one-third of the global population uses inefficient, polluting cooking systems. Daily life is not about cars, laptops or air conditioning for these people; it is about basic access to heat and electricity. To provide adequate and affordable universal energy access, and eradicate energy poverty, oil can and will play a key role in developing countries. The Global South has been – and continues to be – very clear about this; is the Global North taking heed?

Investment in oil is critical for energy security

Another worrying reality across the globe is that not enough investment is going into all energies. Looming oil demand growth alone necessitates far more investment if a sustainable supply is to be maintained.
Oil will make up close to 29% of global energy needs by 2045, with investment of $12.1 trillion needed by then — or over $500 billion a year — but recent annual levels have been far below this.
The consequence of failing to invest adequately in oil is hammered home by recent OPEC Secretariat research outlining that in five years there would be a staggering oil market deficit of 16 million barrels per day between forecasted rising global demand and supply if investments into upstream activities were stopped today — as some are calling for.
The oil industry has played a central role in improving billions of lives to date. If it is to continue to do so, and if the world is serious about implementing orderly energy transitions and meeting future energy demand while ensuring energy security for all, chronic under-investment in the industry needs to be remedied swiftly.
Ahead of this year’s United Nations Climate Change Conference (COP28) in the United Arab Emirates – where the world will evaluate progress on the Paris Agreement – COP28 President-Designate Dr. Sultan Ahmed Al Jaber said the world needs “maximum energy, minimum emissions.” A healthy degree of pragmatism will be necessary to achieve this goal, especially given the clear need to utilize all energies if we are to meet the world’s current and future energy demands.
Ultimately, no people, industry or country can be ignored, and we believe that discussions at this year’s COP28 will reflect this. After all, history is filled with numerous examples of turmoil that should serve as ample warning for what occurs when policymakers fail to take on board energy’s interwoven complexities. More

The Salesforce West office building in San Francisco, Jan. 25, 2023.
Marlena Sloss | Bloomberg | Getty Images

Check out the companies making headlines after hours.
CrowdStrike — The cybersecurity stock added 1% in extended trading. CrowdStrike beat analysts’ second-quarter expectations on the top and bottom lines. The cybersecurity company reported second-quarter adjusted earnings of 74 cents per share on revenue of $732 million. Analysts polled by Refinitiv had forecast earnings per share of 56 cents on revenue of $724 million.

Okta — Okta jumped 10% in extended trading. The identity and access management company exceeded analysts’ second-quarter expectations. Okta posted second-quarter adjusted earnings of 31 cents per share on revenue of $556 million. Analysts polled by Refinitiv had expected earnings per share of 22 cents on revenue of $535 million. Okta also issued a strong outlook for the third quarter and full year.
Salesforce — Salesforce climbed 5.6% after the software company reported fiscal second-quarter earnings and revenue that surpassed estimates. Salesforce posted quarterly adjusted earnings of $2.12 per share, greater than the $1.90 per share forecast by analysts polled by Refinitiv. It posted revenue of $8.60 billion, more than the expected $8.53 billion. Its third-quarter outlook was also robust.
Five Below — Five Below fell 7% after sharing a weak outlook. The discount retailer expects third-quarter earnings of 17 cents to 25 cents per share, lower than the 40 cents per share forecast by analysts polled by Refinitiv. The company also anticipates third-quarter revenue of $715 million to $730 million, weaker than the $738 million estimated by analysts.
Victoria’s Secret — Shares slid 2.7% after Victoria’s Secret posted disappointing second-quarter results. The lingerie retailer reported adjusted earnings of 24 cents per share on revenue of $1.43 billion. Analysts had expected earnings per share of 26 cents on revenue of $1.44 billion, according to Refinitiv. Additionally, Victoria’s Secret anticipates a third-quarter loss of 70 cents to $1 per share, while analysts called for a loss of 14 cents per share.
Chewy — Chewy fell nearly 1% even after reporting a second-quarter beat. The pet food retailer posted revenue of $2.78 billion, better than the $2.76 billion consensus estimate from Refinitiv. Earnings came in at 4 cents a share, while analysts called for a 5 cent loss per share.

Pure Storage — Shares rose 1.4% after Pure Storage reported better-than-expected second-quarter earnings and third-quarter revenue outlook. Pure Storage reported adjusted earnings of 34 cents per share on revenue of $689 million. Analysts polled by Refinitiv had expected earnings per share of 28 cents on revenue of $680 million.
Costco Wholesale — The stock rose 0.3% in after-hours trading. Costco Wholesale reported August net sales of $18.42 billion, which represents a rise of 5.0% year over year. More

The logo of printer manufacturer HP is seen during an event.
Paco Freire | LightRocket | Getty Images

Check out the companies making headlines in midday trading.
HP — HP dropped 6.6% in midday trading after reporting a fiscal third-quarter revenue miss. Late Tuesday, the PC maker reported quarterly revenue of $13.20 billion, lower than the $13.37 billion estimated by analysts polled by Refinitiv. Otherwise, its third-quarter adjusted earnings of 86 cents per share came in line with estimates.

Box — The cloud storage stock tumbled 12.3%. On Tuesday, the company delivered weak guidance for the current quarter. Box anticipates third-quarter earnings of 37 cents to 38 cents per share, while analysts polled by FactSet called for 39 cents per share. Full-year revenue guidance was also softer than expected.
Ambarella — The semiconductor stock sank 20.4% on weak third-quarter guidance. Late Tuesday, Ambarella said it expects revenue of $50 million in the current quarter. That fell short of a Refinitiv estimate of $67.6 million in revenue. Despite the disappointing guidance, Ambarella topped second-quarter expectations on the top and bottom lines, posting a smaller-than-expected loss per share. 
PVH — Shares added 1.9% after the Calvin Klein parent reported an earnings beat late Tuesday. PVH’s adjusted earnings per share for the second quarter was $1.98, versus the consensus estimate of $1.76, per Refinitiv. Revenue came in at $2.21 billion, versus the $2.19 billion expected. The company also raised its earnings outlook for the year and reaffirmed its full-year revenue guidance.
Brown-Forman — The Jack Daniel’s parent slid 4% after missing Wall Street expectations for its first fiscal quarter of 2024. Brown-Forman posted 48 cents in earnings per share on $1.04 billion in revenue. Analysts polled by Refinitiv anticipated 53 cents in earnings per share and $1.05 billion in revenue.
Insulet — The insulin pump maker climbed 6.4% after CEO James Hollingshead reported buying 5,550 shares Tuesday. On Monday, the company announced the launch of an insulin delivery service called Omnipod 5 in Germany after previous rollouts in the U.S. and U.K.

Fluence Energy — Shares advanced 1.1% after Barclays initiated coverage of the energy storage stock with an overweight rating. Barclays said the company could grow revenue 40%.
Spotify — The music streamer added 3.4% after Wells Fargo reiterated its buy rating. The firm said it likes Spotify’s positioning for the third-quarter and fourth-quarter guidance.
Apple — The Big Tech giant rose 1.9% after Citi reaffirmed its buy rating. The firm said it’s bullish heading into the company’s Sept. 12 event.
Rockwell Automation — The industrial automation stock retreated 2.4% following a downgrade to underweight from equal weight by Wells Fargo. The firm warned slowing sales growth could be ahead.
Netflix — The tech stock rose 1.1%, putting Netflix on track for its fourth-straight positive session. Wells Fargo said in a note to clients Wednesday that Netflix could have a “much longer tail” of subscriber growth as it cracks down on password sharing and builds up its advertising tier.
Sunrun — Shares of the residential solar energy company jumped about 1.8% after Citi upgraded the stock to buy from neutral. The Wall Street firm said Sunrun is “not getting due credit” for numerous catalysts set to drive the stock higher, including falling component costs and investment tax credit benefits.
Align Technology — The Invisalign maker’s shares rose 0.9% after HSBC initiated coverage of the stock with a buy rating. The firm cited further market share opportunities for Align and its strong brand presence.
— CNBC’s Samantha Subin, Hakyung Kim, Sarah Min, Yun Li, Michelle Fox and Jesse Pound contributed reporting. More

Homeownership regularly nears the top of surveys about what Americans most want in life. Alas, this part of the American dream has rarely been harder to attain. Those looking to enter the property market face a triple whammy of high prices, costly mortgages and limited choice. Together these factors have conspired to make housing deeply unaffordable, with little sign of relief on the horizon. Yet in a roundabout way, the property crunch also helps explain one of the most pressing economic conundrums of the day: why American growth has remained robust, defying predictions of a recession.Housing is usually one of the sectors most sensitive to interest rates, but things have not been quite so straightforward in America. As the Federal Reserve turned hawkish over the past two years, mortgage rates soared, ascending from less than 3% to more than 7%. For the median family buying the median home, mortgage payments doubled from roughly 14% of monthly household income in 2020 to nearly 29% in June, the highest since 1985, according to the National Association of Realtors (see chart).Surprisingly, this jump in mortgage rates has not led to a decline in house prices. They fell briefly as rates began to rise but have since rebounded to the record highs hit early last year after covid-era stimulus boosted the economy. Figures on August 29th showed that this rebound may be gaining strength: house prices in the second quarter of this year rose at an annualised pace of 15%, according to the s&p Case-Shiller index, a benchmark for American property prices. What explains this impressive resilience? For something the size of America’s property market—where annual sales are worth about $2trn, scattered across a continent-sized economy, in which some regions are flourishing and others contracting—there is inevitably a nuanced answer. However, a good summary came in late August from Douglas Yearley, chief executive of Toll Brothers, one of America’s biggest homebuilders, during an earnings call. “There are still buyers out there. They have very few options,” he explained.Although demand for homes has fallen as rates have risen, the supply of properties has fallen almost in lockstep. Homebuyers typically obtain fixed-rate mortgages for 30 years—unheard of in most countries but viewed almost as a constitutional right in America, owing to the role of Fannie Mae and Freddie Mac, two giant government-backed firms, which buy up mortgages from lenders and securitise them. In enabling lenders to offer long-term fixed rates, their objective is to make it easier for people to buy homes. But at the moment long-term rates are serving as an impediment, since homeowners who got low-interest mortgages before the Fed ratcheted up rates have no desire to give them up, and so are unwilling to sell their homes. Redfin, a property platform, calculates that about 82% of homeowners have mortgage rates below 5%. Charlie Dougherty of Wells Fargo, a bank, calls it “a state of suspended animation” for the housing market. The decline in transactions, all else being equal, ought to hurt the economy, dampening housing-related activity, with less money spent on remodelling, new construction, furniture and so on. This is not how things have played out. Unable to trade up to nicer digs, locked-in homeowners have invested more fixing up their current homes. The rise of remote working has reinforced that trend, with people adding extra office space to their houses. Remodelling expenditures in 2022 reached nearly $570bn, or about 2% of gdp, up by 40% in nominal terms from 2019, according to the Joint Centre for Housing Studies at Harvard University.Many of those braving the market in order to buy homes have opted for new-builds, not existing stock. One advantage of newly built homes is that they are actually available. Thus they account for about one-third of active listings this year, up from an average of 13% over the two decades before the covid-19 pandemic, according to the National Association of Home Builders. As Daryl Fairweather of Redfin puts it: “Builders are benefiting because they don’t have competition from existing homeowners.” Homebuilders have also been bold in offering incentives to buyers. Most strikingly, they have been “buying down” as much as 1.5 percentage points on mortgage rates, by paying a one-time fee upfront that reduces future interest payments. That has allowed their in-house mortgage companies to offer rates of roughly 5%. For homebuilders, these buy-downs are equivalent to knocking off about 6% from their selling price, which they can easily afford given the strength of their balance-sheets. For buyers, the lower mortgage rates are welcome relief in the current environment, which has translated into a pick-up in both purchases and construction. New starts on single-family homes bottomed out late last year. In July starts were up by nearly 10% compared with a year earlier.Property types now wonder whether the price resilience will continue. The market faces a test as mortgage rates climb even higher. For much of the past year rates had seemed to stabilise at around 6.5%, but since the start of August investors have concluded that the Fed will keep policy tight for longer, which has pushed up mortgages towards 7.5%. “The higher rates go, the more demand falls. This is going to catch up with the homebuilders pretty quickly,” reckons John Burns, a property consultant. To counteract a slowdown, some lenders may offer riskier deals. Zillow, a property platform, is now promoting downpayments of just 1% on homes in Arizona, a once-hot market. If prices fall, owners with little equity in their homes may be among the first to default.If, though, the property market does remain resilient, it is the Fed’s policymakers who will face a test. Strong housing-market activity contributes to an overheating economy. A sustained rebound in prices would also complicate the inflation outlook. The relationship is not entirely straightforward. since property shows up in inflation indices in terms of rental prices, rather than purchase ones. Moreover, the main inflation gauges tend to lag high-frequency measures of rents by at least six months. These high-frequency measures have fallen for much of the past year, and that decline is just now filtering into official inflation indices—a process that will probably continue into early 2024.What happens after that is much less certain. On the one hand, a record number of apartment units are under construction, and this supply ought to keep a lid on rents. On the other hand, the unaffordability of housing is forcing more would-be buyers into the rental market, which could push up rents and add to inflation. One big thing is clear: until interest rates come back down, millions of Americans will have little choice but to defer their dream of homeownership. ■ More