Financial regulations could significantly influence UBS' profitability in both the near and long term and they will constrain the Swiss bank from resuming dividend payments, CFO John Cryan told CNBC Tuesday.
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Swiss Bank
UBS made a provision for the UK bank tax in the second quarter, announced in the first quarter, estimated at 10 percent of the bank's pre-tax profit, Cryan said.
The Swiss bank has already seen proposals from the Basel committee in relation to general regulation capital and liquidity regulation and Cryan was optimistic that it will be able to meet capital and liquidity requirements by the time they are introduced in 2012.
But the tighter regulations would hurt dividends, he said.
"They (capital regulations) are essentially rigorous to the extent that it is unlikely we’ll be able to pay anything other than a very symbolic dividend over the next two or three years," Cryan said.
"We’ll be retaining our earnings to meet the more stringent capital requirements. So the prospects for generous dividends for the next few years are very slight."
Clients Flee Regulatory Scrutiny
Increased regulatory scrutiny of cross-border accounts remains the primary reason for continuing client redemptions at UBS, Cryan said.
Despite significant first-quarter improvement in UBS’ fixed income division – which quadrupled its fourth quarter revenues – the bank is still experiencing net outflows, a situation that Cryan described as “still unsatisfactory.” “We’ve taken steps to win back clients,” he said.
But investors remain wary over the implications of stricter cross-border financial regulation.
“I think it's general concerns about the impact of increased scrutiny over cross border accounts… I do think that’s the principal factor," Cryan added.
That was not necessarily the case as last year, when people were primarily concerned about UBS, he explained.
"But a good profit progression should allay fears about UBS, so I think its more external factors that impinge on us than internal ones,” Cryan said.
With regards to the ongoing European sovereign debt crisis, UBS doesn't “have material exposure to governments whose bonds have been the subject of these concerns," he said, adding: "we're sleeping at night relative to our positions." UBS may have even benefitted from uncertainty in the markets, but would like more stability, according to Cryan.
"The volatility in the market has been a little bit of opportunity for us," he said.
"But there are two sides to that particular coin and we would prefer markets to stabilize a little bit.”