Which Swiss Bank Returns More Cash To Shareholders: UBS Or Credit Suisse?

by Trefis Team
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After the financial crisis of 2008, the profitability of major banks around the world took a significant hit – forcing them to significantly reduce (and in some cases stop) dividend payments while also discontinuing their share repurchase program. However, as banks adjusted their business model to respond better to changed market conditions and stricter regulatory requirements, most of them began to grow their profits steadily and began returning cash to their investors. While the European banks have been slower off the starting block compared to their U.S.-based peers in this regard, the two Swiss banking giants UBS (NYSE: UBS) and Credit Suisse (NYSE: CS) have done fairly well over recent years.

Trefis analyzes how dividend payouts as well as share repurchases have trended for UBS vs. Credit Suisse since 2007, and finds that UBS has done a much better job of returning cash to investors over the years.

What is the payout ratio and why it is important?

  • Companies return money to shareholders in two primary ways: a) dividends b) share repurchases (buybacks).
  • The payout ratio shows the proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage of the company’s earnings while the adjusted payout ratio also includes the share repurchases.
  • The payout ratio is a key financial metric that determines the sustainability of a company’s ability to return cash to investors.

How Has The Payout Ratio Of Swiss Banks Changed Since The Sub-Prime Crisis?

#1 UBS Has Been More Generous In Returning Cash To Shareholders, But Credit Suisse Has Been More Consistent

  • UBS has returned a larger proportion of earnings to shareholders than Credit Suisse in the last few years. As of 2018, UBS’s payout of $3.3 billion was almost 5 times that of Credit Suisse’s $660 million.
  • However, Credit Suisse has consistently returned wealth to the shareholders since the crisis while UBS didn’t pay any dividends over 2008-11.
  • In hindsight, though, UBS’s approach seems to have been better as it allowed the bank to focus on getting its operations in shape well before Credit Suisse.
  • For the current year, we expect UBS’s total payout to be nearly $3.4 billion while Credit Suisse is expected to return around $1.4 billion to shareholders.

#2 UBS’s Dividend Payout in 2018 Was Almost 4x That Of Credit Suisse’s

  • UBS’s dividend payout of $2.5 billion in 2018 was almost 4x that of Credit Suisse’s $0.67 billion.
  • Moreover, UBS’s dividend payout ratio of 51% was much higher than Credit Suisse’s 32%.
  • For FY’19, we expect Credit Suisse to return around $0.8 billion in the form of dividends while UBS’s dividend payout is expected to remain constant at $2.5 billion.

 

#3 UBS’s Dividend Per Share Has Also Exceeded Credit Suisse’s In The Past Few Years

 

#4 UBS Restarted Its Share Repurchase Program in 2018 While Credit Suisse Did So This Year

  • Both the Swiss banks abandoned their share repurchase program after the crisis.
  • UBS restarted its share repurchase program in 2018 and repurchased common stock worth $0.8 billion while Credit Suisse resumed its repurchase program in 2019.

 

#5 UBS’s Total Payout Ratio In 2018 Was Double Credit Suisse’s

  • The total payout ratio for both banks have been considerably volatile over the years because of significant fluctuations in net income for both banks.
  • As of 2018, UBS returned around 68% of its net income to shareholders while Credit Suisse’s payout ratio was less than half at 32%.

 

Conclusion: Swiss Bank Payouts Remain Well Below The Peak Seen In 2007, But They Have Increased Steadily Over Recent Years

  • Total wealth returned to shareholders by the banks have taken a hit since the crisis.
  • Although the payout ratio of banks has increased mainly as the banks wanted to let their investors feel comfortable and reinforce confidence, payout in absolute numbers is well below the high in 2007 due to a fall in profitability as well as due to stricter capital requirements.
  • UBS’s net income margin has declined from around 30% before the crisis to around 16% in 2018 while Credit Suisse’s net income margin has fallen from 30% to just 10% in 2018.
  • Going forward, we expect the payout ratio of both the banks to stabilize around 70% over coming years.

 

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