UBS profit up 79% amid 'paralyzing' volatility

UBS reports net profit up 79%
UBS reports net profit up 79%

Swiss bank UBS on Tuesday reported net profit for 2015 ahead of analyst expectations, but warned that volatile markets, low interest rates and a strong Swiss franc would continue to present headwinds.

The stock was down over 7 percent in early deals.

The group reported net profit up 79 percent at 6.2 billion Swiss francs, ahead of a consensus forecast compiled by Reuters of 5.75 billion Swiss francs.

The fourth quarter was characterized by very low levels of client activity and pronounced risk aversion, the group said. Fourth-quarter net profit nonetheless beat forecasts.

UBS Chief Executive Sergio Ermotti said the recent wild gyrations in financial markets had been tough on the bank. "It is the kind of volatility that de facto paralyzes a lot of investors," he told CNBC. "You see a lot of volatility which de facto scares people more than being a constructive element for our businesses."

But by prudently managing resources and risk, Ermotti said the bank was weathering the storm. Clients were still happy with their asset allocation at this stage, he said. "They believe the underlying fundamentals are still ok."

The wealth management business reported its best annual pre-tax profit since 2008 but net new money outflows amounted to 3.4 billion Swiss francs for the quarter, reflecting significant client deleveraging.

With oil prices near 12-year lows and smaller companies being pushed into bankruptcy, concerns have been raised about banks' exposure to the energy sector. Ermotti said UBS had around 6.1 billion Swiss francs of exposure to the industry. More than 50 percent was in investment grade and was well diversified, he said, while almost 90 percent is in North America.

"We feel very comfortable with this exposure," he said.

But Ermotti sounded a cautious note for this year. "Our outlook unfortunately has been quite constant in the last few quarters. I see this convergence again of geopolitical issues with macroeconomic considerations still putting a lot of pressure on investor sentiment."

Chris Hondros I Getty Images

The past year has been tough for banks as they grapple with low interest rates and tighter regulations, as well as significant market volatility.

The group's board will propose a total dividend of 0.85 Swiss francs per share to be paid out to shareholders, above analyst forecasts of 0.81 Swiss francs per share.

"We are fulfilling our commitments (to paying at least 50 percent of net profits to shareholders)," Ermotti said. For 2016 the group was still aiming at growing its ordinary dividend, he said.

UBS said in the third quarter that adjusted return on tangible equity, a closely watched measure of profitability, would reach 15 percent by 2017, disappointing investors.

Ermotti said he was pleased with the near 14 percent return on tangible equity in 2015, ahead of the bank's 10 percent target. "Of course the environment is tough", he said, adding the group would try to reach the target this year.

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