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UBS suffers 2012 loss on Libor-fixing fines

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(Globalpost/GlobalPost)

Swiss banking giant UBS said Tuesday it suffered a crushing loss last year, as massive fines from the Libor rate-fixing scandal weighed especially heavily on its results.

Switzerland's biggest bank said it last year incurred a net loss of 2.5 billion Swiss francs (2 billion euros, $2.7 billion), compared to a net profit of 4.1 billion francs a year earlier.

In the fourth quarter alone, as the bank was slapped with a whopping $1.5 billion in fines connected to the Libor scandal, UBS posted a net loss of 1.8 billion francs.

That result was less than what had been expected by analysts polled by Swiss financial news agency AWP, who on average expected the bank to turn in a quarterly loss of 2.2 billion francs.

Following the news, UBS saw its share price tumble 3.7 percent at the opening bell, but by midday was trading only about 1.0 percent lower.

Despite the 2012 loss, UBS said it had made progress in executing its strategy to focus on wealth management and reduce its higher risk investment banking operations, which has been the source of numerous scandals and burdened it with catastrophic losses during the 2008 subprime crisis.

It also said it would recommend increasing its dividend by 50 percent to 0.15 francs per share.

In the fourth quarter of 2012 UBS's investment banking unit suffered a pre-tax net loss of 557 million francs, down from a loss of 2.8 billion francs in the previous quarter.

The wealth management unit meanwhile posted a pre-tax profit of 398 million francs in the fourth quarter, down from 582 million francs in the third quarter.

The bank's net new money inflows at the same time slowed considerably during the quarter to just 2.4 billion francs, down from 7.7 billion in the previous three-month period, as accelerating outflows from Western European clients offset cash influxes from Asia.

UBS financial chief Tom Naratil told reporters in Zurich that one reason for the cash flight in Europe was the German parliament's last-minute rejection last year of a tax deal aimed at regularising the situation of Germans with secret accounts in Switzerland.

UBS chief executive Sergio Ermotti told reporters that "we are focusing on what we can control."

UBS also announced it would buy back 5 billion francs worth of its bonds in order to lower its funding costs and improve its capital ratios.

US, British and Swiss authorities late last year hit Switzerland's largest bank with $1.5 billion in fines -- the second-largest banking penalty ever -- for massive misconduct in the setting of the Libor rate.

That rate is used as a benchmark for global financial contracts worth about $300 trillion and affects financial products worldwide such as student loans and mortgages.

Analysts downplayed the impact of UBS's massive loss Tuesday, stressing that it had not been as bad as expected.

"Investors who buy UBS shares do so for the medium term transformation of UBS from a universal bank into a wealth manager," Sarasin bank analyst Rainer Skierka said in a research note, stressing that "UBS is on track to achieve its goals."

UBS meanwhile said it had introduced a new compensation system, slashing performance-linked bonuses by 7.0 percent from 2011 to 2.5 billion francs -- coincidentally equal to the bank's annual loss.

It is the bank's lowest bonus pool since the financial crisis began and a full 42-percent drop from 2010, it said in a statement.

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http://www.globalpost.com/dispatch/news/afp/130205/ubs-suffers-2012-loss-libor-fixing-fines