UBS hikes reserves for penalties

ZURICH • UBS increased reserves for penalties tied to mis-selling residential mortgage-backed securities by more than US$400 million (S$558 million) to US$1.405 billion as it posted an 11 per cent rise in third-quarter pre-tax profit.

The Swiss bank made the disclosure in its quarterly report yesterday, following news last month that the US Department of Justice had demanded a US$14 billion fine from Deutsche Bank in a similar investigation. This was far more than analysts had expected and prompted fears that UBS, the world's biggest wealth manager, could also face a stiffer penalty.

UBS' pre-tax profit for the three months to end-September rose 11 per cent year on year to 877 million Swiss francs (S$1.2 billion), ahead of market forecasts, thanks to a strong business in the Swiss market and cost cuts.

Nevertheless, UBS maintained its gloomy outlook amid negative interest rates in Switzerland, cautious client activity and economic uncertainty.

"These conditions are unlikely to change in the foreseeable future," said a UBS statement.

UBS did not benefit from the same surge in investment banking revenues experienced by US banks since its business is more geared towards equities, and Wall Street earnings were boosted by bond trading.

It is the downside to UBS' widely lauded post-financial crisis strategy to focus on capital-light wealth management while scaling back on investment banking and fixed income, where earnings are more volatile and which consume more capital.

In the tough environment, UBS' flagship wealth management saw a sixth straight quarter of falling or stagnating gross margins. But the division's net margin - which factors in cost savings - rose slightly to 27 basis points.

Net profit fell to 827 million francs from 2.1 billion francs in the same quarter last year, which had benefited from a net tax benefit of 1.3 billion francs.

The bank's common equity tier 1 capital ratio, an important measure of balance sheet strength which UBS uses as a benchmark for its dividend, fell to 14 per cent from 14.2 per cent due to a slight rise in risk-weighted assets.


A version of this article appeared in the print edition of The Straits Times on October 29, 2016, with the headline 'UBS hikes reserves for penalties'. Print Edition | Subscribe