UBS chief warns of 'huge volatility' as profit jumps
Swiss banking group UBS on Tuesday reported fourth quarter net profit well above analysts' expectations, helped by a tax benefit.
Net profit for the quarter came in at 917 million Swiss francs ($1.01 billion), a stark improvement on the 1.9 billion Swiss franc net loss it reported for the same period a year ago. Analysts polled by Reuters forecast net profit of 354 million Swiss francs, but the figure was boosted by the 470 million Swiss franc tax benefit.
UBS Chief Executive Sergio Ermotti told CNBC on Tuesday that all divisions in the business had contributed to a "solid quarter" but warned that the bank could face market headwinds in 2014.
"The volatility out there is quite huge – there are a lot of unresolved matters – you've seen what's happened in the last few days in emerging markets and, overall, I do think the making predictions about the stabilization of this environment is quite hard." He added UBS was not "counting on markets to address our targets."
However, Ermotti was confident that the business could weather current market conditions and that client confidence would return.
"We are very disciplined in our execution, we are very pleased that we are still growing in terms of lending money…I'm pretty confident that our business model works indifferent market conditions as you could see in 2013."
The bank said it would pay out a dividend of 0.25 Swiss francs per share for 2013.
The latest earnings follow a troublesome couple of years for the UBS – one of the world's largest private banks by assets under management.
The bank has undergone a period of structural changes since the financial crisis, shifting its focus away from risky trading in its investment banking division toward its wealth management operations.
In October 2012, the bank announced it would implement 10,000 job cuts as it underwent a major cost-cutting overhaul and a year later, it said that litigation, regulatory and similar matters had weighed on third-quarter earnings, although its net profit beat forecasts.
On Tuesday, the bank reported that its tier 1 capital ratio increased 90 basis points (bps) to 12.8 percent, adding that the Swiss national regulator Finma required the bank to have a 22.5 billion Swiss francs additional capital, down from a temporary 28 billion Swiss franc buffer that was disclosed in the third quarter.
In terms of regulatory requirements, Ermotti said the bank was ahead of schedule and was meeting new rules on leverage ratios – the ratio of equity to debt – required for all banks in order to avoid future financial crises.
"In respect of the leverage ratio we have a clear path," Ermotti remarked. "We are already well ahead of our minimum regulatory requirements by continuing a disciplined reduction of our risk-weighted assets and the balance sheet in general we will achieve our targets in a permanent manner."
"Looking at the overall environment I'd say we'll be able tothen have a good capital return for our shareholders," he said, though he would not comment on whether there would be a special dividend after 2014.
The bank also confirmed it was cooperating with an ongoing global investigation into the alleged rigging of the foreign exchange markets.
It said several class actions related to the probe had been filed since November against UBS and other banks alleging collusion by the defendants and asserting claims under antitrust law and for unjust treatment. It said the defendants, including UBS, had not yet filed a response.
Despite the overall improvements, UBS warned that unresolved issues in Europe, continuing U.S. fiscal and monetary policy issues, emerging markets fragility and the mixed outlook for global growth would make improvements in prevailing market conditions unlikely.
"This could cause traditional improvements in first quarter activity levels and trading volumes to fail to materialize fully and would generate headwinds for revenue growth, net interest margin and net new money," UBS said.