Which Swiss Bank Is In Better Shape: UBS or Credit Suisse?

by Trefis Team
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UBS (NYSE:UBS) and Credit Suisse (NYSE:CS) are the two largest Swiss banks. After the economic downturn, the banks decided to cut back their investment banking activity and increased their focus on wealth management in view of stricter regulatory requirements. UBS was first off the block in terms of restructuring its business and has been able to reap the benefits of a more stable business model with less focus on volatile revenues over recent years. On the other hand, Credit Suisse is yet to finish making changes to business model. Although Credit Suisse has cut down on its trading operations, its business model remains much more diversified than UBS.

Trefis compares key operating metrics for UBS vs Credit Suisse in an interactive dashboard, and concludes that UBS’s business is larger and more profitable – with the largest Swiss bank faring better on most counts. The dashboard captures historical performance trends for UBS and Credit Suisse over recent years along with our forecast for 2019. Additionally, you can find more Trefis Financial Services company data here

Credit Suisse is smaller, but has a more diversified business model compared to UBS

  • UBS’s revenues were $31 billion in 2018 with the Wealth Management division contributing more than 55%.
  • Credit Suisse’s revenues in 2018 stood at $21.5 billion, with Investment Bank and Wealth Management both contributing approximately 40% to the top line.
  • UBS’s revenue have remained largely stagnant around the $31 billion mark over the last years due to sub-par performance by its investment bank even as its Wealth Management business flourished
  • On the other hand, Credit Suisse has lost $3.8 billion in total revenues since 2015 at an average annual rate of 5.4% mainly due to the bank’s more recent decision to scale-down its securities trading business

UBS’s Operating Margin Is Better Than Credit Suisse’s

  • UBS and Credit Suisse have been quite successful in reducing costs over the years. Stringent cost-cutting measures have helped these banks significantly improve their pre-tax margins.
  • Cost-cutting measures have helped UBS’s operating margin steadily increase from 14.7% in 2016 to 19.8% in 2018 despite stagnating revenues
  • Credit Suisse’s operating margin has seen a much larger improvement, though, going from -10% in 2015 to more than 16% in 2018. Over 2015-16, the bank’s margins had been adversely impacted by one-time restructuring and litigation charges

UBS manages 50% more client assets than Credit Suisse

  • UBS is the largest wealth manager in the world. As of 2018, UBS’s client assets of $2.3 trillion were roughly 50% more than that of Credit Suisse’s $1.5 trillion.
  • Notably, though, an increase in the number of high net-worth individuals (HNIs), as well as an increase in their assets have helped the Swiss banks increase their asset valuations over the years

UBS’s Wealth Management division is bigger, but operates at a lower profit margin compared to Credit Suisse

  • Given UBS’s focus on its wealth management business, this division was responsible for 55% of total revenues in 2018
  • Stable wealth management fees as well as an increase in asset base has helped the division’s pre-tax margin remain around 22% over the last four years.
  • On the other hand, Credit Suisse’s wealth management business is relatively smaller. As of 2018, Credit Suisse’s revenue of $8.5 billion was roughly half to that of UBS’s $16.9 billion.
  • However, Credit Suisse’s wealth management business is much more profitable. Credit Suisse’s pre-tax margin of 34.6% in 2018 was almost 50% more than that of UBS’s 23.6 %.
  • The primary reason for this is a notable difference in average fees. Credit Suisse’s average fees in 2018 was 1.1% of the bank’s client assets compared to a figure of 0.8% for UBS.

UBS’s Notably Higher Net Income Implies That Its Return on Assets (RoA) Figure Is Better Despite Its Larger Asset Base

  • As of 2018, UBS’s return on assets stood at 0.5% – substantially higher than the 0.3% figure for Credit Suisse
  • Moreover, UBS’s asset turnover ratio of 3.15% is 35% higher than that for Credit Suisse – implying that UBS is using its asset base more efficiently.

Moreover, UBS’s CET1 Capital Ratio Is Marginally Better Than That Of Credit Suisse

Common Equity Tier I Capital Ratio= Adjusted Common Equity ÷ Risk Weighted Assets

  • As of 2018, Credit Suisse’s CET1 ratio stood at 12.6% as opposed to UBS’s 12.9%.
  • Although Credit Suisse reported a marginally higher common equity figure compared to UBS at the end of 2018, a higher risk-weighted asset base dragged its CET1 ratio below UBS’s

Other Key Operating Metrics

  • UBS reported a headcount of 68K at the end of 2018, while CS had 46K employees.
  • Moreover, Credit Suisse’s revenue per employee in 2018 stood at $458K – roughly 5% higher than the figure for UBS. UBS has seen its revenue per employee fall steadily over the years, while Credit Suisse’s Revenue per employee has increased by roughly 5% since 2016.
  • At the same time, UBS’s average compensation per employee is much higher, and was $236K in 2018 as opposed to a figure of $211K for Credit Suisse

Conclusion: UBS Is Clearly Doing Better Than Credit Suisse On Most Counts

  • UBS has a larger and more profitable business than Credit Suisse.
  • Moreover, UBS’s focus on wealth management business has helped it churn a larger share of wealth management revenues.
  • On the other hand, Credit Suisse’s business is more diversified and its cornerstone wealth management business is much more profitable than UBS.
  • However since 2015, Credit Suisse has significantly reduced its trading business and is developing a business model similar to that of UBS.
  • Credit Suisse’s focus on wealth management business could help the bank develop a more profitable business than UBS. But given the outreach of UBS’s wealth management business, it is highly unlikely that CS would be able to match UBS’s scale over the foreseeable future

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