UBS Group (NYSE:UBS) is anticipating a loss of approximately $1.6 billion in the third quarter following its decision to exit certain loan portfolios previously held by Credit Suisse (SIX:CSGN), according to the bank's recent financial report. The Swiss bank became part of UBS Group in June, and the reclassified loans were moved to a "non-core" unit for wind down.
The report also revealed that UBS could suffer an additional loss of up to $600 million in the same quarter due to winding down certain management arrangements. These decisions are part of UBS's strategy to exit businesses that do not align with its existing plans. In August, UBS indicated that it was closing two-thirds of Credit Suisse's investment bank, including almost all its trading operations.
Despite these potential losses, investors remain optimistic about UBS's ability to successfully integrate the former rival into its operations. The bank's shares are on track for their best quarterly share-price gain in 14 years.
This news comes after UBS reported a record net profit of $28.88 billion in the second quarter, which included Credit Suisse's results as of June 1. The substantial profit was partly due to the accounting difference between the $3.8 billion price UBS paid for Credit Suisse and the value of the acquired lender's balance sheet.
The non-core unit, created to store Credit Suisse positions and businesses that were not aligned with UBS's strategy and policies, included assets and liabilities from various divisions such as the Capital Release Unit, Investment Bank, Wealth Management and Asset Management divisions. By the end of June, this unit had approximately $55 billion of risk-weighted assets, with some $8 billion in positions exited during the last quarter.
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