UBS, Switzerland's biggest bank, posted a fourth-quarter loss after booking a fine for trying to rig global interest rates and costs tied to job cuts. The net loss amounted to 1.89 billion Swiss francs €1.53 billion), compared with a profit of 323 million francs a year earlier, the Zurich-based bank said.
Chief executive officer Sergio Ermotti is cutting 10,000 jobs over three years and exiting most debt-trading businesses to focus the bank on money management and boost return on equity, a measure of profitability, to at least 15 per cent in 2015. Chairman Axel Weber said in an interview last month that while market trends have improved, he expects a "bumpy" recovery this year.
"Patience is required for UBS to deliver," Morgan Stanley analysts Huw van Steenis and Hubert Lam said in a note to investors before today's release, adding that stronger markets would help speed up deleveraging at UBS. Successfully exiting fixed income should "reveal higher returns in the core business," while execution risks "will be critical," they said.
UBS has risen 48 per cent to 15.62 francs in Swiss trading over the past six months, compared with a 27 per cent gain in the Bloomberg Europe Banks and Financial Services Index, which tracks 40 companies. UBS said it plans a dividend of 15 centimes a share, up from 10 centimes in the previous year.
Pre-tax profit in wealth management fell 13 per cent to 398 million francs in the fourth quarter on higher costs, while wealth management Americas saw earnings rise 38 percent to 201 million francs. The units added 10.5 billion francs in net new money in the quarter, compared with 12.3 billion francs in the previous three months. Earnings in asset management rose 24 percent to 149 million francs and fell 10 percent in the retail and corporate division, while the investment bank posted a pretax
loss of 557 million francs.
"While progress was made on many issues during 2012, many of the underlying challenges remain at the start of the new year," Ermotti and Weber said in a letter to
shareholders. "Failure to achieve further sustained and credible improvements to the euro-zone sovereign-debt situation, European banking system issues, unresolved U.S. fiscal issues, ongoing geopolitical risks and the outlook for growth in the global economy would continue to exert a strong influence on client confidence and, thus, activity levels in the first quarter of 2013."
The bank has cut its 2012 bonus pool by 7 per cent on foot of its results. The bonus pool, including pay deferred into future years, amounts to 2.5 billion Swiss francs, down from 2.7 billion francs for 2011.
About 500 million francs of bonuses will be paid in contingent capital bonds, which will be written off if the common equity ratio falls below 7 per cent or UBS needs a bail-out. UBS and Credit Suisse Group, the country's biggest banks, can use contingent capital instruments to boost their capital ratios under Swiss rules. UBS said it could increase capital by about 1 percentage point through awarding bonuses in contingent notes over the next five years. Barclays Plc awarded part of its 2010 bonus pool under a “contingent capital plan” whereby bonuses were deferred over three years and were only to be paid out if the group's core tier 1 ratio, a measure of financial strength, is at least 7 per cent. UBS said the contingent capital notes broadly replicate the features of bonds that were sold to investors in 2012, with the key difference being that employees' bonds would be written off at a 7 per cent capital trigger, while for other bonds that level was set at 5 per cent.
“It thus incentivises prudent risk-taking by employees,” UBS said in a statement. “We are confident that our compensation decisions for 2012 are in the best interests of the firm and its future. They will help reinforce a culture of accountability, create the incentives necessary to execute our strategy, and deliver attractive returns to our shareholders.”
Bloomberg
