UBS AG chief executive officer Sergio Ermotti said in the statement that
they are "actively addressing litigation and regulatory matters."
“We are making progress,” Chief Executive Officer Sergio Ermotti said in a Bloomberg Television interview as the bank posted a 32 percent jump in third-quarter profit. “We are today in a position to have a better estimate of how to address those issues. In some cases we may be able to reach conclusions in the foreseeable future.”
UBS has been wrestling with legal probes that range from
the rigging of foreign-exchange rates to allegations it helped clients evade taxes -- investigations that could lead to sanctions that hurt profitability. The Zurich-based bank said today it’s in talks with the antitrust and criminal divisions of the U.S. Justice Department about alleged currency-rigging.
“I think we have seen the peak in litigation costs,” said Peter Stenz, a Zurich-based fund manager at Swisscanto Asset Management AG. “At some point we’ll see light at the end of the tunnel.”
Net income rose to 762 million francs in the quarter from 577 million francs a year earlier helped by a net tax gain of 1.32 billion francs. While the securities unit had a pretax loss because it booked the bulk of the legal charges, all other businesses, including the wealth-management unit, posted earnings that met or exceeded analyst forecasts.
Logos sit on a frosted-glass window at a UBS AG bank branch in Zurich.
‘Solid’ Results
The stock rose 4.7 percent to 16.15 francs at 11:35 a.m. in Zurich, the biggest gain since February. The shares have fallen 4.6 percent so far this year, exceeding the STOXX 600 Banks Index’s 1.5 percent drop.“UBS is trying to settle foreign exchange issues by year-end,” Kian Abouhossein and Amit Ranjan, London-based analysts at JPMorgan Chase & Co. with an overweight recommendation on UBS, said in a note. “A speedy foreign exchange resolution globally should clear the decks for UBS.” The bank’s underlying results were “very solid,” they added.
Wealth management pretax profit rose 27 percent to 707 million francs, beating analysts’ estimate of 641 million francs. Earnings at wealth management Americas rose 17 percent to 236 million francs. The units added 9.8 billion francs and 4.6 billion francs in net new money, respectively. Earnings in asset management rose 31 percent to 154 million francs, while the retail and corporate banking unit posted a 6 percent increase in income to 426 million francs.
Advisory, Underwriting
The investment bank posted a pretax loss of 1.28 billion francs compared with a profit of 251 million francs a year earlier after the 1.69 billion-franc litigation provision.Revenue in the corporate client solutions unit, which includes advisory, underwriting and financing businesses, jumped 46 percent to 738 million francs in the quarter. Equities trading posted a 2.3 percent increase in revenue to 884 million francs, while the foreign-exchange, rates and credit unit saw a 6.8 percent revenue decline to 315 million francs.
Still, UBS said the outlook for revenue remains uncertain.
“At the start of the fourth quarter of 2014, many of the underlying challenges and geopolitical issues that we have previously highlighted remain and in some cases have intensified,” Ermotti and Chairman Axel Weber said in a letter to shareholders in the quarterly report. “A number of new concerns have arisen including the fear of risks related to the Ebola virus.”
DoJ Agreement
Analysts had estimated legal provisions at 358 million francs in the quarter, according to the average of four forecasts. The bank has paid about $3.6 billion in fines and settlements since 2012, including $1.5 billion to regulators in the U.S., the U.K. and Switzerland for rigging global interest rates.UBS may be the first bank to reach a settlement with the U.S. DoJ in its investigation of the matter, the Financial Times reported this month. The bank is also one of a group in discussions with the U.K.’s Financial Conduct Authority that may lead to a settlement of the regulator’s probe into currency-rigging as soon as next month, people familiar with the probes have said.
UBS expects the financial industry to continue facing “elevated” costs for legal and regulatory matters “for the foreseeable future.”
UBS is under investigation in France and Belgium for allegedly helping wealthy clients avoid taxes. In the French probe it paid a security deposit of 1.1 billion euros ($1.4 billion) at the end of September. The fine in the case could be as much as 4.9 billion euros, a person familiar with the matter has said.
The bank also said that it agreed in principle with the DoJ to extend the term of its non-prosecution agreement on the Libor probe by one year to Dec. 18, 2015. The original agreement said UBS will not commit any U.S. crime in the period and failure to comply with obligations could result in termination of the agreement and potential criminal prosecution.
Restructuring Charges
Ermotti declined to elaborate on any potential settlement, saying timing and impact are “impossible to predict.” He said he’s “very confident” that UBS will be able to post capital levels this year necessary for the bank to pay out higher dividends.UBS has said it plans to pay out more than 50 percent of earnings as dividends to shareholders, provided its common equity ratio under the Basel III rules is at more than 13 percent and stays at more than 10 percent under internal stress tests. The common equity ratio was 13.7 percent at the end of September, while the post-stress ratio stayed above 10 percent.
Credit Suisse Group AG (CSGN), Switzerland’s second-biggest bank, last week posted earnings that beat estimates on higher revenue from debt trading at the investment bank. The five biggest U.S. securities firms saw their combined revenue from trading fixed income, currencies and commodities rise 14 percent in the third quarter from a year earlier, data compiled by Bloomberg Intelligence show. UBS decided to scale down the debt trading business in 2012.
UBS said it expects restructuring charges to amount to about 1.5 billion francs in 2015, about 1 billion francs in 2016 and about 500 million francs in 2017 as it continues to target 2.1 billion francs in net annual cost savings. The bank said investments in information technology infrastructure and simplification will account for about half of the costs from next year through 2017.
“This means the reorganization is much more extensive than we had thought,” said Dirk Becker, a Frankfurt-based analyst at Kepler Cheuvreux with a hold recommendation on UBS.
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