UBS Group AG Rides on Strategic Expansions Amid Rising Expenses

UBS Group AG UBS is benefiting from steady net interest income (NII) growth and an expansion strategy. However, legal issues and elevated expenses are concerning.

UBS’ Growth Drivers

Strategic Partnerships & Buyouts: UBS Group AG has expanded its geographical footprint through strategic partnerships and acquisitions. In June 2023, UBS Group AG completed the acquisition of Credit Suisse (a regulatory-assisted deal). This enhanced UBS capabilities in wealth and asset management, as well as aids in growing its capital-light businesses. Following this merger, UBS Switzerland AG has succeeded to all the rights and obligations of Credit Suisse (Schweiz) AG. 

In April 2025, UBS made a strategic partnership with 360 ONE WAM Ltd, one of India's leading wealth and asset managers. Under this arrangement, UBS will purchase warrants to acquire a 4.95% share and will sell its onshore Indian wealth business to 360 ONE, while clients based in Singapore will continue to be served by UBS Singapore. The bank also expanded its private credit offerings through a collaboration with General Atlantic this month, enhancing the private market capabilities of its Investment Bank.

Credit Suisse Integration Progress: UBS is progressing well with its integration of Credit Suisse and is on track to achieve cost reductions. The company aims for full completion by the end of 2026 and is targeting $13 billion in gross cost reductions to enhance operational efficiency. It has already merged 95 branches in Switzerland and migrated over 90% of client accounts outside Switzerland to UBS platforms. The company plans to begin the first main wave of Swiss client migrations in second-quarter 2025, and preparation is on track.

Solid Capital Position: UBS Group AG displays a strong capital position. As of March 31, 2025, the CET1 capital ratio remained at 14.3%, while the CET1 leverage ratio decreased slightly to 4.4%, both above management guidance of around 14% and more than 4%, respectively. In fact, management forecasts to achieve an underlying return on CET1 capital ratio of approximately 15% and 18% by 2026-end and 2028-end, respectively.

NII Growth: The company’s NII witnessed a 4.9% CAGR over the past four years. Though NII fell in the first quarter of 2025 due to lower loan margins and deposit spreads, the metric is expected to improve in the upcoming period driven by repricing strategies and decent loan demand.

Challenges for UBS

Legal Challenges: Despite UBS’ strengths, legal and regulatory hurdles remain a major concern. UBS faces class action lawsuits from former Credit Suisse shareholders, increasing litigation provisions and putting pressure on profitability. The bank recently agreed to pay $511 million to settle a U.S. Department of Justice tax probe related to Credit Suisse’s past dealings. The company has agreed to the probe settlement as part of its inherited legal liabilities from Credit Suisse and will record the charge in its second-quarter 2025 results, while aiming to reduce the future legal cost reserves related to Credit Suisse. 

Mounting Expense Base: UBS Group AG’s escalating expense base is concerning as it exposes it to operational risks. The metric witnessed a CAGR of 14.3% in four years (ended 2024), with rising trend continuing in the first quarter of 2025.  Rising personnel and administrative expenses, coupled with integration costs, could weigh on near-term profitability. Further, the continuous investment in integrated cost and digital infrastructure will keep the expense elevated, affecting bottom-line growth in the near term.

UBS’ Price Performance & Zacks Rank

Over the past six months, shares of the company have gained 2.4% compared with the industry’s growth of 23.7%.

UBS currently carries a Zacks Rank #3 (Hold). 

UBS’ Peers Worth Considering

Some better-ranked banks worth a look are Deutsche Bank DB and Mitsubishi UFJ Financial Group MUFG, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Estimates for DB’s current year’s earnings have remained unchanged in the past seven days. The company’s shares have risen 70% over the past six months.

Estimates for MUFG’s current year earnings have remained unchanged in the past seven days. The company’s shares have gained 17.4% over the past six months.

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This article originally published on Zacks Investment Research (zacks.com).

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