Source: Bloomberg
UBS AG, Switzerland’s biggest bank, has announced that fourth-quarter profit dropped 76 per cent after its investment bank reported a second consecutive quarterly loss.
Net income fell to CHF393 million (US$427 million) from CHF1.66 billion in the year-earlier period, the Zurich-based bank said in a statement Tuesday. Earnings missed the CHF721-million average estimate of eight analysts surveyed by Bloomberg over the past four weeks.
Chief Executive Officer Sergio Ermotti, who took over from Oswald Gruebel following the discovery of a US$2.3-billion loss from unauthorised trading in September, is shrinking the investment bank as stricter capital requirements and the European sovereign debt crisis hurt profitability. UBS announced plans in November to scale down fixed-income businesses and cut risk-weighted assets at the division under Basel III rules almost by half.
Concerns about Europe’s debt crisis and the global economic outlook that hurt earnings last quarter are “likely” to affect client activity this quarter as well, Ermotti and Chairman Kaspar Villiger said in a letter to shareholders Tuesday. “Traditional improvements in first-quarter activity levels and trading volumes may fail to materialise fully, which would weigh on overall results for the coming quarter, most notably in the investment bank.”
UBS is not alone in reporting lower earnings and losses at securities businesses for the quarter as the debt crisis curbed trading. Deutsche Bank AG, Germany’s biggest bank, last week said fourth-quarter profit fell 76 per cent as its investment bank posted a EUR422-million (US$554-million) pre-tax loss. Credit Suisse, which reports earnings on February 9, may say profit fell 53 per cent to CHF396 million in the quarter, according to the mean estimate of nine analysts surveyed by Bloomberg, who also forecast a loss at the securities unit.
UBS aims to reduce risk-weighted assets at the investment bank, run by 44-year-old Carsten Kengeter, by CHF145 billion from CHF300 billion under Basel III rules by 2016. The company reduced risk-weighted assets by about CHF20 billion in the fourth quarter, it said.
The bank also cut its profitability target in November to a return on equity of between 12 per cent and 17 per cent starting in 2013, compared with the goal set in 2009 of 15 per cent to 20 per cent.
