UBS Q4 Profit Hit By Fallout From Trading Scandal

Published February 7, 2012 5:09PM (EST)

GENEVA (AP) — Switzerland's biggest bank, UBS AG, saw its profits slide by 76 percent in the fourth quarter, in a further sign that a $2 billion trading scandal last year has dented business at a time of economic weakness in Europe and abroad.

The Zurich-based bank said Tuesday its net profit fell to 393 million Swiss francs ($425 million) in the fourth quarter of 2011, compared to the same quarter in 2010 when net profits totaled 1.29 billion francs. Those quarterly profits were later increased to 1.66 billion francs due to tax gains.

The fall was bigger than anticipated — the consensus in the markets was for profits to fall to around 650 million francs.

Nevertheless, analysts at Zuercher Kantonalbank welcomed the strong increase in UBS's capital reserves and shares in UBS weren't falling too much, closing only 1.4 percent lower at 13.02 francs in Tuesday trading.

A more detailed look at the figures shows that UBS's investment bank reported a second consecutive quarterly pretax loss of 256 million francs, as it continues to suffer the fallout from the trading scandal. In the fourth quarter of 2010, the unit made a pretax profit of 100 million francs in the same quarter of 2010.

UBS Chief Executive Officer Sergio Ermotti, who took over after the discovery of unauthorized trading in September, has been downsizing the investment bank to meet stricter capital requirements and shrinking profits due largely to Europe's sovereign debt crisis.

British and Swiss financial market authorities have begun enforcement proceedings against UBS over its massive trading loss last year. Such proceedings can result in regulators demanding changes in the way a bank operates and UBS has said that it would fully cooperate with the regulators.

Former UBS trader Kweku Adoboli, 31, was arrested in September on charges of committing fraud that cost the bank over $2 billion. He has pleaded not guilty to two counts of fraud and two counts of false accounting between 2008 and 2011.

Naratil said the bank's safety and soundness should be reassuring to clients and "the trading incident is not something that clients are talking to us about today."

UBS cautioned about the profit outlook for the first quarter of 2012 but repeated its plan for a dividend of 10 centimes a share for 2011. That would be the first cash payout since 2006.

"Traditional improvements in first quarter activity levels and trading volumes may fail to materialize fully, which would weigh on overall results for the coming quarter, most notably in the investment bank," Ermotti and the bank's chairman, Kaspar Villiger, told shareholders in a letter Tuesday.

UBS also reported cost-cutting reductions of 2.1 billion francs along with cuts in its bonus pool of 40 percent compared with a year ago. It said there had been an improvement of more than 50 billion francs in net money flowing to its key wealth management businesses due to net inflows from the Americas, Asia Pacific, emerging markets and "globally from ultra high net worth clients."

UBS Chief Financial Officer Tom Naratil told reporters that the bank has established a "rock solid foundation" of capital, liquidity and funding — its main business goals.

"We have the strongest capital position of our peer group," Naratil said of the industrywide requirements for banks to increase their capital cushion. And despite it being a "difficult" year for the bank and the industry as a whole, he said, the bank delivered a full-year pretax profit of 5.5 billion francs for the year.

However, he said it would take a resolution of the debt crisis in Europe "for client confidence to fully return."

UBS has over 60,000 staff around the world and manages more than 2 trillion francs in assets,

By Salon Staff

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