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UBS Earns $29 Billion From Badwill Tied to Credit Suisse Deal

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When UBS agreed to buy its archrival, Credit Suisse, for a little over $3 billion this spring at the Swiss government’s behest, analysts and investors said that price represented a steep discount. UBS’s latest financial results reflect just how much of a steal it was.

Today, the bank reported a $29 billion profit — yes, you read that right — for the second quarter, the biggest quarterly profit in banking history. But that paper gain belies the challenges that UBS faces as it moves to complete the largest takeover of a bank since the 2008 financial crisis.

UBS’s huge profit arises from “badwill,” an accounting phenomenon where a company buys an asset for less than it’s worth, leading to a noncash gain that essentially recognizes the actual value of the asset. (It’s also known as “negative goodwill.”) UBS reported that its underlying profit for the quarter was just $1.1 billion.

A wave of bank rescue deals this year has led to pumped-up profits for acquirers. Second-quarter profits at JPMorgan Chase jumped 67 percent in large part because of its takeover of First Republic, while First Citizens enjoyed a 3,500 percent gain in first-quarter profit after buying Silicon Valley Bank at a steep discount.

But UBS has more work to do, with the bank estimating that the Credit Suisse acquisition will be largely completed by 2026. Among its biggest tasks is consolidating its former rival’s domestic bank with its own, despite concerns that the move will undercut competition in Swiss retail banking.

Uniting the two will lead to some 3,000 job losses in the country, fulfilling fears among politicians and voters. But UBS defended its decision today, saying, “Our analysis clearly shows that full integration is the best outcome for UBS, our stakeholders and the Swiss economy.”

Meanwhile, Credit Suisse’s own results — including a pretax loss of 4.3 billion Swiss Francs ($4.9 billion) in the quarter, tied to customer withdrawals and struggles in investment banking — suggest that UBS still has big hurdles to overcome in absorbing the business.

For now, UBS shareholders appear happy, especially with the badwill gain showing just how much the bank benefited from rescuing its rival. (UBS manages about $5 trillion in client assets following the deal.) Shares in the bank were up over 5 percent today, at 23.42 Swiss francs ($26.57), and now trade at their highest level since the summer of 2008.


Senator Mitch McConnell freezes again in a public appearance. During a Q.&A. session with reporters in Kentucky yesterday, the top Senate Republican stopped speaking mid-answer for about 30 seconds. It was the second such incident in two months, and it renewed questions about the health of McConnell, 81, and his ability to continue serving out his term.

Donald Trump is accused of vastly overinflating his properties’ values. Attorney General Letitia James of New York said in a court filing that the former president fraudulently pumped up the value of his holdings for years, boosting his net worth by up to $2.2 billion. Lawyers for Trump said the case, one of many he faces in federal and state courts, should be dismissed.

Microsoft moves to unbundle its Teams app in Europe. The tech giant hopes that offering lower-cost versions of its productivity software packages that don’t include the communications program will assuage E.U. regulators who opened an antitrust investigation into the matter last month. Whether that will be enough is unclear: A spokeswoman for the European Commission declined to comment on whether the move satisfied regulators’ concerns.

Regulators reportedly look into benefits that Tesla gave Elon Musk. Federal prosecutors in Manhattan and officials at the S.E.C. are examining perks including a spacious glass house in Texas described within the company as a house for its C.E.O., according to The Wall Street Journal. The inquiries, which appear to center on whether company-provided benefits were properly disclosed to investors, are the latest legal headache for Tesla.

The S&P 500 is riding a four-day winning streak on hopes that the Fed is done raising interest rates. That optimistic view will be tested tomorrow morning when the Labor Department releases its nonfarm payrolls report for August.

Economists polled by Reuters estimate that employers added 170,000 jobs in August, which would be the smallest monthly increase since December 2020. But investors would likely greet a modest slowdown — along with evidence that wages are moderating — favorably.

For much of the year, markets have reacted positively to any piece of data showing that the Fed’s policy of raising its prime lending rate was cooling the red-hot labor market and, in turn, helping to lower inflation.

The labor data already released this week has cheered investors. Yesterday’s ADP private payroll report for August showed the slowest job growth in five months. That followed a Labor Department data release on Tuesday that revealed a steep drop in job openings. “The labor market is cooling and is taking pressure off policymakers concerned with a second wave of inflation,” Jeffrey Roach, chief economist for LPL Financial, a research firm, wrote in a note yesterday, pointing to the ADP data.

The Fed is widely expected to hold rates steady at its meeting next month. And the futures market yesterday was pricing in a 44 percent chance of the Fed raising rates at its November policy meeting — a stark drop from the 67 percent odds traders were placing at the beginning of the week. Jay Powell, the Fed chair, warned last week that central bankers do not consider their inflation fight to be over yet, making Friday’s jobs numbers pivotal.

  • In other labor news, the Biden administration yesterday proposed an increase in the cutoff for salaried workers who can receive overtime, making millions more workers eligible for time-and-a-half pay if they work more than 40 hours a week.


Steve Schwarzman, the co-founder of Blackstone, speaking to Puck about the possibility of a Biden-Trump rematch in 2024 despite both candidates polling poorly among voters. Schwarzman, a major Republican donor who has turned his back on Trump, said another candidate could yet claim the G.O.P. nomination.


Hurricane Idalia has been downgraded to a tropical storm and is moving north after battering Florida, leaving residents counting the costs of the devastation and the insurance industry predicting billions of dollars in claims. But the storm’s impact also shines a light on the complicated relationship between Gov. Ron DeSantis, a Republican presidential contender, and the federal government, which typically spends big to help in such cleanups.

The Biden administration has pledged support. The Federal Emergency Management Agency has about $3.4 billion in its disaster relief fund to deal with the fallout of the Maui wildfires and Idalia. Deanne Criswell, head of the agency, told reporters yesterday that DeSantis had “no unmet needs,” before heading to Florida. President Biden said that he had called DeSantis to say he had approved an emergency declaration that the governor requested, adding, “I think he trusts my judgment and my desire to help.”

But DeSantis hasn’t always backed the spending of federal funds for disaster relief. When he was a congressman in 2013, he rejected assistance for victims of Hurricane Sandy in New York. As governor of Florida, however, he has sought aid, and during Hurricane Ian last year he paused his political feuding with Biden. DeSantis also condemned F.E.M.A. for denying a request for funds to rebuild homes after Ian.

DeSantis is already rejecting federal funds in other ways. Florida is eligible for about $350 million in green incentives under the Inflation Reduction Act, but the governor has refused the money. Republican governors in South Dakota and Iowa, along with Kentucky’s Democratic governor, are turning down smaller sums.

But DeSantis’s broader rejection suggests that taking a stance on I.R.A. money could become a talking point in the race to decide the Republican presidential candidate. And that could ultimately undermine President Biden’s efforts to promote his environmental policies on the 2024 campaign trail while climate change makes emergencies like Idalia increasingly common.


Deals

  • Reid Hoffman, the LinkedIn co-founder, will reduce his role in finding new investments at Greylock Ventures to focus more time on artificial intelligence efforts. (WSJ)

  • Dan Och, a co-founder of the hedge fund Sculptor, is fighting back against its planned sale to Rithm Capital, widening a messy dispute over the fate of the once-giant fund. (FT)

  • The billionaire Thomas Tull is reportedly seeking to increase his stake in the N.F.L.’s Pittsburgh Steelers. (Bloomberg)

Policy

  • The Fed reportedly raised risk and compliance concerns about a Goldman Sachs division’s work with fintech companies. (FT)

  • “How Jeffrey Epstein Tried to Tap Into Trump’s Circle” (WSJ)

  • A federal judge rejected a bid by Trevor Milton, the founder of the electric vehicle maker Nikola, for a new trial on fraud charges, dismissing claims that a juror was secretly biased against the rich. (Reuters)

Best of the rest

  • New documents purport to show how associates of the Adani family used opaque funds to secretly amass holdings in the multibillion-dollar Adani conglomerate. (FT)

  • Laszlo Birinyi, the financier who made a fortune with an investing approach centered on market “psychology,” died on Aug. 21. He was 79. (NYT)

  • How billionaires including Sumner Redstone, Sam Zell and founders of Carlyle were reportedly defrauded of millions by a man who was already behind bars. (New Yorker)

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Accounting

Trump berates Republicans to ‘Stop talking,’ pass tax cuts

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Donald Trump listens to a question while speaking to members of the media before boarding Marine One on the South Lawn of the White House in Washington, D.C.
Donald Trump

Al Drago/Bloomberg

President Donald Trump called on members of his party to unite behind his economic agenda in Congress, putting pressure on factions of lawmakers who are calling for last-minute changes to the legislation to drop their demands.

“We don’t need ‘GRANDSTANDERS’ in the Republican Party,” Trump said in a social media post on Friday. “STOP TALKING, AND GET IT DONE! It is time to fix the MESS that Biden and the Democrats gave us. Thank you for your attention to this matter!”

Trump sent the post from Air Force One after departing the Middle East as the House Budget Committee was meeting to approve the legislation, one of the final steps before the bill can move to the House floor for a vote.

House Speaker Mike Johnson has set a goal to pass the bill next week before the House recesses for its Memorial Day break.

However, the the bill failed the initial committee vote — typically a routine, procedural step — with members of the party still sparring over the scope of the cuts to Medicaid benefits and how much to raise the limit on the state and local tax deduction.

Narrow majorities in the House mean that a small group of Republicans can block the bill. Factions pushing for steeper Medicaid cuts and for an increase to the SALT write-off have both threatened to defeat the bill unless their demands are met.

“No one group gets to decide all this stuff in either direction,” Representative Chip Roy, an ultraconservative Texas Republican advocating for bigger spending cuts, said in a brief interview on Friday. “There are key issues that we think have this budget falling short.”

Trump’s social media muscle and calls to lawmakers have previously been crucial to advancing his priorities and come as competing constituencies have threatened to tank the measure.

But shortly after Trump’s Friday post, Roy and fellow hardliner Ralph Norman of South Carolina appeared unmoved — at least for the moment. Both men urged continued negotiations and significant changes to the bill that could in turn jeopardize support among moderates.

“I’m a hard no until we get this ironed out,” Norman said. “I think we can. We’ve made progress but it just takes time”

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97% say CPA firms not using tech efficiently says survey

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While CPA firms far and wide have made major technology investments over the years, the vast majority of accountants say they’re not being used to their full potential. 

This finding comes from a recent survey undertaken by CPA.com and payment solutions provider Bill. The 400-person poll found that nearly all respondents, 97%, say they use technology inefficiently and that additional training is needed to maximize return on investment. Further illustrating the point, 43% of respondents said that technology is making them do more manual work, not less, something. Becky Munson, an Eisner Amper partner specializing in outsourced accounting services, believes this reflects a failure of training and change management, as she has seen many who disliked a technology change develop manual workarounds specifically to avoid using the new solutions. 

“We see employees make workarounds with tech stacks, which makes headaches that I think align with this 43%. We train people on new things, we ask them to use them, and they keep doing what they were doing before and only use the technology as much as they have to [in order to] move things along while you have people well trained on the software keeping up,” she said in a webcast on Thursday about the survey. 

Inefficient

Ariege Misherghi—senior vice president and general manager of accounts payable, accounts receivable and the accountant channel—said the issue isn’t just because of firms but also vendors that don’t provide enough support, and may not necessarily understand the profession in the first place. 

“Too often I think tools aren’t fully aligned with the workflows they’re meant to support. In SaaS they talk about product-market fit, but in this profession it’s not just that but also product-firm fit, and maybe product-profession fit. Not every tool marketed to accountants was built by people who truly understand how this profession works: the rhythms, the regulations, the stakes, the relationships, all of that. And even the greatest tools can fall short if they’re not implemented with a deep understanding of how firms really operate,” she said. 

And sometimes the inefficiencies come from both sides at once: the survey found that only 37% of firms require clients to use their tech stack, something that Munson said “breaks my heart” as “it is so low.” A streamlined, established tech stack is needed to achieve true economies of scale, but to get there firms need to standardize their data, and to do that firms need to make sure their clients’ data is also standardized, which usually means integrated tech stacks. 

“If you have all these different clients with all these different technologies, even if your own tech stack is standardized the systems they use is different, so the kind of data you will get will be different, and the work you need to do to make it work with your data is different, and your team spends a lot of time spinning their wheels,” she said. “Once you get standardized, where everything back and forth from clients is the same, you get to see how well the teams can do their work.” 

One source of inefficiencies is a rushed implementation. Munson said that, too many times, firms are so eager to get a solution working that they don’t pay attention to all its capacities, just the ones they need right now, but once the basics are down firms still don’t circle back on the rest of the features and how they can be used to drive efficiency. 

“Most of us have been through an implementation, either in the practice or with a client, where you’re just like ‘anything to get it working. Forget about all the fancy things it does. We just needed to do the basics right,’ and then we never circle back on those better, more efficient processes. We get to sort of minimal viable, and then we forget to come back and give it an extra polish. And so what we see there is the processes get written for that basic piece, and we never update,” she said. 

But this is part of what both speakers believed was the larger problem of firms getting lost in the details of their tech stacks and not taking a broader, more holistic approach, which would enable more efficiencies. The key component to managing technology effectively, Munson said, is looking not at individual solutions here and there but thinking of the system as a whole. 

“Often, what happens is something’s wrong or something is troublesome in some way. And so [we say] what can we do to fix that one thing? And we don’t think about it holistically and get all the right folks in there so that we’re solving for the right pain points,” she said. 

Misherghi agreed, and added that this holistic extends not only to the technology a firm already has but the solutions they plan to purchase in the future. When evaluating what technology they need, she said leaders need to think not in terms of specific point solutions to particular problems but things that can support the entire workflow—plus, the onboarding, training and ongoing support from the vendor. 

“Don’t just look for features, right? Look for solutions that support your workflows from providers that understand you. For firms, onboarding and training and optimization can’t be an afterthought. They’re essential to realizing value. I think this is where vendor partnerships matter. Firms seeking the strongest results aren’t just using software, they’re collaborating with their providers, they’re staying educated, they’re making sure their tools evolve alongside their needs. The best outcomes happen when your technology partner acts like part of your team, not just part of your toolkit,” she said. 

Misherghi said that the more successful firms she’s seen think less in terms of performing particular tasks but designing an entire system that, through automation, can do those tasks for them. It is less about plugging holes and more about developing a full infrastructure. The survey found that 74% of participants have a detailed plan to add new services in the next 12 month; Misherghi noted that, among these firms, 86% have a detailed technology roadmap, which is “a wonderful mark on the evolution of the profession we’re seeing.” 

She said a good tech roadmap is more like a service design blueprint versus a shopping list. Successful firms, she said, are not just chasing features but designing intentional workflows and systems capable of scalable service delivery. Similarly, she stressed that the provider should be more than just a vendor but a strategic co-architect that can help with growing pains. 

Misherghi said this approach will become especially relevant as AI becomes more common, as integrations will be key to their effective use, which means thinking in terms of the whole system to understand where those integrations should take place. Right now, she said, people think of AI in terms of analyzing data or extracting fields, but with the rise of AI agents will require firms to focus more on coordinating between them. 

“I think the next big leap is when those systems don’t just talk to each other, they act on each other’s behalf. I think the next big inflection point will be moving from automated steps to autonomous workflows, where AI agents aren’t just analyzing data or extracting fields but actually orchestrating tasks across tools based on firm policies and context and that will change the role of the accounting profession: its less time doing the work and more time designing the system for how everything works together. So the firms that will be thriving are those who are building strong infrastructure now because that is what AI needs to deliver on its core value,” she said.

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Trump tax bill fails in House panel

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A key House committee on Friday failed to advance House Republicans’ massive tax-and-spending bill after hard-line conservatives bucked President Donald Trump and blocked the bill over cost concerns.

The House Budget Committee rejected the bill 21-16, with Republican Reps. Chip Roy, Ralph Norman, Josh Brecheen, and Andrew Clyde joining Democrats to vote against it. The four hardliners demanded deeper cuts to Medicaid and other government programs.

It’s incredibly rare for bills to fail at this step in the process, with the committee vote typically serving as a rubber-stamp to the bill before it moves to the House floor. 

Representative Chip Roy
Rep. Chip Roy

Stefani Reynolds/Photographer: Stefani Reynolds/B

The setback could be temporary and the panel can still approve the bill once the GOP differences are resolved. 

Republican Lloyd Smucker, who switched his vote to “no” to allow the committee to bring it up again, told reporters the committee will hold another vote on Monday. 

Trump, whose social media muscle and calls to lawmakers have previously been crucial to advancing his priorities, inserted himself in the debate less than two hours before the vote, berating dissidents and urging them to fall into line. 

“We don’t need ‘GRANDSTANDERS’ in the Republican Party,” Trump said in a social media post on Friday. “STOP TALKING, AND GET IT DONE! It is time to fix the MESS that Biden and the Democrats gave us. Thank you for your attention to this matter!”

The bill’s failure exposes the power a small group of lawmakers can wield as Republicans seek to push Trump’s “one big, beautiful bill” through the House with very narrow margins. GOP infighting threatens to kill the bill, or at least significantly delay Republicans’ plans to pass the bill next week.

(Read more:‘One big beautiful bill’ full of tax surprises.”)

Republican holdouts spelled out their demands during Friday’s committee meeting, including accelerating new work requirements for able-bodied adults on Medicaid to take effect immediately rather the 2029 deadline set in the legislation. The ultraconservatives also want a faster phase-out of clean energy tax credits.

It wasn’t immediately clear how House Republicans will re-group to address the divisions and advance the bill.

“I’ll let you know this weekend if we’re going to return first thing Monday. That’s the goal at this point,” Budget Chairman Jodey Arrington said after the vote. 

House Majority Leader Steve Scalise, who is helping to broker a deal among Republicans, said party leaders are in touch with the Trump administration to address some of the changes demanded by hardliners.

“We are all in agreement on the reforms we want to make,” Scalise said. “We want to have work requirements. We want to phase out a lot of these green subsidies. How quickly can you get it done?”

House Speaker Mike Johnson on Thursday pledged he would work through the weekend to broker a compromise between moderates, who are seeking an increase in state and local tax deductions, and ultra-conservatives, who say they won’t support it without more spending cuts.

(Read more:Here are the winners and losers in the Republican tax bill.“)

Members from both factions — the SALT Republicans representing high-tax districts and the fiscal hawks who want steeper budget reductions — have threatened to block the bill if House leaders don’t acquiesce to their demands. 

“No one group gets to decide all this stuff in either direction,” Roy, an ultraconservative Texas Republican advocating for bigger spending cuts, said in a brief interview on Friday. “There are key issues that we think have this budget falling short.”

Both Roy and Norman urged continued negotiations and significant changes to the bill that could in turn jeopardize support among moderates.

“I’m a hard no until we get this ironed out,” Norman said. “I think we can. We’ve made progress but it just takes time.”

If the legislation passes the House, it would then head to the Senate where it would likely undergo significant changes. Several members, including Senator Josh Hawley of Missouri, have stated opposition to the Medicaid cuts in the House bill.

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