Last Updated: Tue Feb 07, 2012 12:38 pm (KSA) 09:38 am (GMT)

UBS warns of poor Q1 after investment bank loss

Shares in UBS dropped in early trade after the bank said fourth-quarter net profit shrank to 393 million Swiss francs from 1.66 billion francs in the 2010 period. (Reuters)
Shares in UBS dropped in early trade after the bank said fourth-quarter net profit shrank to 393 million Swiss francs from 1.66 billion francs in the 2010 period. (Reuters)

Swiss bank UBS posted a loss at its investment bank and warned that the unit’s poor performance would also affect first-quarter results as the euro zone debt crisis and worries about the health of the U.S. economy hurt business.

“Traditional improvements in first-quarter activity levels and trading volumes may fail to materialize fully, which would weigh on overall results for the coming quarter, most notably in the investment bank,” UBS said on Tuesday.

Shares in UBS dropped 1.5 percent in early trade after the bank said fourth-quarter net profit shrank to 393 million Swiss francs from 1.66 billion francs in the 2010 period and compared with a forecast for 737 million in a Reuters poll.

Investment banks had a torrid time last year as trading and advisory income was hammered as clients pulled back from markets due to the euro zone debt crisis, and stopped doing deals. The outlook is set to remain tough as tougher regulations and economic slowdown bite.

U.S. rivals including Goldman Sachs and JPMorgan posted weak fourth quarter income, and Deutsche Bank also fell to a fourth quarter loss due to a slump in bond trading.

UBS, which is also trying to rebuild confidence after a $2 billion rogue trader scandal uncovered in September, added that inflows at its flagship private bank should hold up.

“The trading incident is not something clients are talking to us about today,” UBS financial head Tom Naratil told journalists, adding the uncertainty in the eurozone was doing more to dampen activity by wealthy clients.

The scandal surrounding former UBS trader Kweku Adoboli will linger as he is set to stand trial in September after pleading not guilty to trades the Swiss bank says were unauthorized.

Fourth quarter figures show inflows at the UBS flagship private banking arm slipped to 3.1 billion Swiss francs ($3.4 billion) in the fourth quarter from 3.8 billion in the previous quarter.

“The outlook was mixed, with caution expressed around first quarter 2012 activity offset by optimism on balance sheet strength and progressive capital return,” Nomura analyst Jon Peace said in a note.

Some bright spots

UBS stressed its eurozone exposure was relatively low, in comparison to Deutsche Bank which recently posted a fourth-quarter loss amid one-off charges such as Greek debt writedowns into the quarter.

UBS’s investment bank posted a pretax loss of 256 million, down from a loss of 650 million the previous quarter, with a few “bright spots” such as foreign currency trading, short- and long-term rates and cash equities in Asia-Pacific, Naratil said.

Bonuses, a hot-button issue, will fall 60 percent in the investment bank and 40 percent in UBS overall for 2011, Naratil said.

The bank said it was making progress on delivering on plans to cut total headcount by almost 4,000, with total staff down 1,101 in the quarter to 64,820 at the end of 2011.

“UBS will continue to seek additional efficiencies by exploring opportunities to lower the structural cost base of the firm. In addition, if market conditions deteriorate materially, UBS will take further measures to reduce its cost base,” the bank said.

Naratil said UBS would issue loss-absorbing capital to meet tough new Swiss capital rules fairly quickly, but that it still prefers non-dilutive forms of capital such as write-down debt over contingent convertible bonds, or CoCos.

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