US tax overhaul hits UBS earnings with a $3 billion writedown

  • The consensus from a Reuters poll was for a figure of 1.257 billion Swiss francs, below the 2016 number of 3.3 billion Swiss francs and below the 2015 figure of 6.2 billion Swiss francs
  • Net profit included a writedown of 2.865 billion Swiss francs in the fourth quarter of deferred tax assets due to the introduction a new tax cuts and the jobs act in the United States

The Swiss bank UBS reported a net profit of 1.165 billion Swiss francs ($1.25 billion) for the whole of 2017, weighed down by a writedown in the fourth quarter that related to the new U.S. tax overhaul.

The consensus from a Reuters poll was for a figure of 1.257 billion Swiss francs, below the 2016 number of 3.3 billion Swiss francs and below the 2015 figure of 6.2 billion Swiss francs.

"2017 was an excellent year for us. We delivered stronger financial results and met our net cost reduction target," Sergio Ermotti, the group's chief executive officer, said in a statement.

Speaking to CNBC about the results, Ermotti said the highlight of the year was more clarity on international banking regulation, and the fact that the bank reduced its litigation portfolio further.

"We are now in a position to continue and implement our attractive capital return policy, we increased our ordinary dividend and announcing (a) share buyback program," Ermotti told CNBC.

Net profit included a writedown of 2.865 billion Swiss francs in the fourth quarter of deferred tax assets due to the introduction a new tax cuts and the jobs act in the United States. It said that excluding this writedown, net profit would have increased by 26 percent year-over-year.

New dividend

UBS also said on Monday that it would increase its dividend for investors to 0.65 Swiss francs per share — an 8 percent jump from last year. The bank also introduced a three-year share buyback program of up to 2 billion Swiss francs.

UBS also achieved its net cost reduction target of 2.1 billion Swiss francs but highlighted that low market volatility could affect client activity in its wealth management business. It also said it was creating a unified global wealth management division.

"Wealth creation in the world is set to continue to grow at least twice the GDP (gross domestic product) growth, so around 8 percent a year, and we as a leader, we are well positioned to capture superior growth, which is reflected in our targets," Ermotti told CNBC.

Ermotti foresees a pick up in volatility, particularly in the second part of the year, but he said the company needs to be wary about the kind of volatility that lies ahead. "We have to pay attention to what we are wishing for here, if volatility is triggered by sudden changes in the macroeconomic environment, which we don't expect, more particularly geopolitical events, that wouldn't be a welcomed volatility for sure," he said.

"In general I am not comfortable (with the political backdrop). If I look at the radar screen of geopolitical events, I don't think anybody in the world could be comfortable with what we see, because I see no issue disappearing from the radar screen and I see more and more stuff coming into the radar screen," Ermotti noted.

The Swiss bank is also cautious about the positive impact that rising U.S. interest rates might actually have on margins, given that rates are still very low in the euro zone and negative in Switzerland.

"A little bit of a headwind when you talk about negative rates in Switzerland is an understatement," Ermotti said.

"I do think that the low rates environment is still going to stay with us for the foreseeable future. I would think in the next 12 months is very difficult to see how Europe and Switzerland will get out of that environment," he said.

Shares of UBS were down 2.5 percent in the early hours of European trading on Monday.