In the final quarter of last year, Switzerland's largest bank suffered a net loss of 1.8 billion francs when it booked provisions for the combined fines of 1.4 billion francs from regulators as well as restructuring costs.
The full-year net loss was higher than expectations, with analysts surveyed by the Swiss financial news agency AWP foreseeing on average UBS to turn in a loss of 2.2 million francs.
UBS earned a net profit of 4.1 billion francs in 2011.
Despite the 2012 loss UBS said it had made progress in executing its strategy to reduce its higher risk investment banking operations in favour of wealth management.
The bank 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 posted a pre-tax profit of 398 million francs in the fourth quarter, down from 582 million francs in the third quarter.
UBS also announced it would buy back five billion francs worth of its bonds, which it said would lower its future funding costs and further improve its capital ratios.
"While progress was made on many issues during 2012, many of the underlying challenges remain at the start of the new year," UBS said.
"Failure to achieve further sustained and credible improvements to the eurozone sovereign debt situation, European banking system issues, unresolved US fiscal issues, ongoing geopolitical risks and the outlook for growth in the global economy would continue to exert a strong influence on client confidence and, thus, activity levels in the first quarter of 2013," the bank warned.