UBS Auditor Issues Adverse Opinion on Internal Controls Amid Credit Suisse Integration Challenges

UBS has received an “adverse opinion” from its auditor on the bank’s internal controls over financial reporting for 2024, following unresolved misstatements inherited from Credit Suisse. The Swiss banking giant disclosed the issue in its annual report on Monday, marking a rare and serious warning to investors regarding the reliability of its financial statements.

An adverse opinion, an uncommon rebuke for a global financial institution, signals potential misrepresentations and misstatements in a company’s financial reports. UBS has been working to address internal control deficiencies at Credit Suisse since acquiring the lender in a government-brokered rescue in 2023. However, the bank stated that as of December 31, 2024, its internal controls remained ineffective due to a “material weakness” tied to Credit Suisse’s financial reporting systems.

Following the merger, UBS acknowledged that it could no longer exclude Credit Suisse from its internal control assessments and required additional time to resolve the inherited issues. Ernst & Young, which was re-elected as UBS’s auditor last year, concluded in its evaluation that the bank had “not maintained effective internal control over financial reporting” as of the end of 2024 due to these ongoing weaknesses.

“It’s one of the many legacy issues from the Credit Suisse takeover that need to be addressed,” noted Vontobel analyst Andreas Venditti, underlining the scale of challenges UBS faces in integrating the troubled lender.

The auditor’s warning further underscores the difficulties UBS encounters in executing the largest banking merger since the 2008 global financial crisis. The bank has already faced regulatory scrutiny, coming close to losing a license to manage U.S. retirement plans in January over a paperwork issue linked to the Credit Suisse integration.

UBS attributed the control weakness to the “increased complexity of the internal accounting and control environment” after the merger, combined with ongoing migration efforts and limited time to demonstrate that the integrated control framework is functioning properly. Since the acquisition, the bank has launched a remediation program to address these issues, implementing additional controls and procedures. However, the “remaining material weakness” pertains to risk assessment of internal controls, UBS stated, without specifying a timeline for a full resolution or the associated costs.

A spokesperson for UBS declined to comment further on the matter, while Switzerland’s financial regulator, FINMA, stated that it is in “intense contact” with the bank regarding the Credit Suisse integration but did not comment directly on the auditor’s findings.

Credit Suisse had long grappled with financial reporting deficiencies before its collapse. In 2022, the U.S. Securities and Exchange Commission (SEC) raised concerns about how the bank, under former CFO David Mathers, accounted for various cash flows, including share-based compensation. The issue persisted into 2023, when Mathers’ successor, Dixit Joshi, informed U.S. regulators in mid-March that Credit Suisse’s control deficiencies had “remained un-remediated for several years” and were under reassessment. Just a week later, Credit Suisse collapsed, leaving UBS to inherit the unresolved problems.

The 2022 annual report for Credit Suisse contained explicit warnings from its auditor, PwC, regarding the ineffectiveness of its internal controls over financial reporting that year. Now, as UBS works through these legacy issues, the bank continues to face heightened scrutiny from auditors and regulators alike.

By fLEXI tEAM