UBS share price tumbles on lower profit result

Swiss banking giant UBS on Tuesday saw its share price plummet after jittery investors helped push its first quarter net profit down by nearly two thirds.

UBS share price tumbles on lower profit result
Photo: AFP

Switzerland's largest bank's share price fell 7.9 percent to 15.22 Swiss francs a piece in late afternoon trading as the Swiss stock exchange's main SMI index slumped 1.3 percent.

The steep fall came after UBS reported that its net profit tumbled 64 percent from a year earlier to 707 million Swiss francs (€624 million, $742 million) in the first quarter of 2016.

That was far below the expectations of analysts polled by the AWP financial news agency, who had anticipated a net profit of 815 million Swiss francs.

Income slumped 22 percent to 6.8 billion Swiss francs in the same period.

The bank said it was being squeezed by low interest rates, a strong Swiss franc and nervous investors staying out of the markets.

'Substantial volatility'

A negative financial market, “substantial volatility”, and underlying economic and political uncertainty had frightened away investors, leading to “abnormally low” trading volumes in the first quarter, UBS said in a statement.

The bank's trading income plunged a full 53 percent in the first quarter, to just over 1 billion Swiss francs, it said.

But UBS chief executive Sergio Ermotti insisted the bank had performed well despite the difficulties.

“In view of exceptionally low client activity levels, we continued to manage our resources effectively while making progress on costs,” he said.

One bright spot in the earnings report was that UBS's private banking businesses attracted an unexpected amount of net new money, totalling 29 billion Swiss francs, the highest amount since 2008.

But although some factors had stabilised, the underlying economic and political risks were still scaring away investors, the bank said, adding that they are unlikely to be resolved in the “foreseeable future”.

Low interest rates and the strength of the Swiss franc still presented headwinds, it said. In addition, changes to the international banking rules would likely require the bank to further raise its capital and costs.

“UBS continues to execute its strategy with discipline to mitigate these effects and is well positioned to benefit from even a moderate improvement in conditions,” UBS said.

UBS is far from the only bank suffering the impact of nail-biting investors, and analysts said its performance was considered “good”, considering the circumstances.

“We suspect that UBS' performance will be among the better of the banks and the strong capital and excellent net new money flow probably still give the shares some 'safe haven' status within the sector,” Baader Helvea analyst Tim Dawson said in a research note.

“The question is whether one should be invested in the sector at all,” he added.

Others meanwhile said UBS's results showed the bank still had cost-cutting work to do.

“Unless the revenue environment improves significantly, we believe UBS needs to work more on improving its cost base,” Vontobel analyst Andreas Venditti said in a note.

But he added that “in a still uncertain environment, we continue to believe UBS is better positioned than most peers due to a strategy focused on its leading WM (wealth management) business.”

UBS has undergone a massive restructuring, including some 10,000 job cuts, to centre its activities around wealth management, which is less sensitive to market fluctuations than business banking.

On Tuesday the bank said it had achieved savings of 1.2 billion Swiss francs since 2013, and said it was “on course” to achieve its target savings of 2.1 billion by the end of 2017.

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Switzerland’s UBS faces €3.7-billion fine as crucial court ruling looms

A Paris court will rule Wednesday on whether Swiss banking giant UBS illegally tried to convince French clients to hide billions of euros in Switzerland, charges which prompted prosecutors to seek a record €3.7-billion fine.

Switzerland's UBS faces €3.7-billion fine as crucial court ruling looms
UBS denies charges it helped French clients evade tax and says it will defend itself "vigorously". Photo: AFP

The trial opened last autumn after seven years of investigations, launched when several former employees came forward with claims of unlawful conduct. 

The move came as authorities across Europe cracked down on tax evasion and dubious banking practices in the wake of the global financial crisis which erupted in 2007.

The pressure eventually forced Switzerland to effectively end its tradition of ironclad bank secrecy, by joining more than 90 countries which agreed to automatically share more client account information among each other.

In the UBS case, French authorities determined that more than €10 billion had been kept from the eyes of tax officials between 2004 and 2012.

The National Financial Prosecutor's office urged a €3.7-billion ($4.2 billion) fine, the largest ever sought in France, saying the bank and its directors “were perfectly aware that they were breaking French law” by unlawfully soliciting clients and helping them evade French taxes.

They also sought a €15 million fine for UBS's French subsidiary, and fines of up to €500,000 for six top executives, including Raoul Weil, the former third-in-command at UBS, and Patrick de Fayet, formerly the second-ranking executive for its French operations.

In addition, lawyers for the French state, which is a plaintiff in the case, asked for €1.6 billion in damages.

UBS, which was ordered to post €1.1 billion in bail, has denied the charges and said its operations complied with Swiss law.

It also says that it was “unaware” that some French clients had failed to declare assets in Switzerland, and that prosecutors have not produced any proof, such as client names or account numbers, to back up their fraud claims.

The case is being closely watched by industry executives at a time when Paris and other European capitals are hoping to lure multinational banks from London as Brexit looms.

'Milk tickets'

UBS is accused of organising or inviting prospective clients to prestigious outings such as the French Open or luxury hunting retreats, where UBS's Swiss bankers would meet their “prospects” — something they were not allowed to do under French law.

UBS France directors then used notes called “milk tickets” to keep track of how many “milk cans” – amounts of money – were transferred to Swiss accounts.

They say the system was merely a way to balance out bonuses due to French bankers who were effectively losing a client to their Swiss peers, and the notes were later destroyed.

But investigators claim the “milk tickets” were proof that UBS had a parallel accounting system for keeping the transfers off its official books.

Only one “milk ticket” was found during the inquiry, prompting defence lawyers to argue there was no proof to justify claims of a massive fraud.

Yet prosecutors pointed to the roughly 3,700 French UBS clients who later took advantage of an amnesty offer to regularise their tax declarations with the French authorities.

UBS has been embroiled in a series of similar cases, most notably in the United States, where the authorities said the bank used Switzerland's banking secrecy laws to help rich clients avoid taxes.

In 2009 it paid $780 million to settle charges it helped thousands of American citizens hide money from the Internal Revenue Service, and agreed to turn over information on hundreds of clients, severely denting Switzerland's long tradition of shielding banking clients and their operations from prying eyes.

That case was also prompted by a former American UBS employee turned whistleblower, Bradley Birkenfeld, whose book “Lucifer's Banker: The Untold Story of How I Destroyed Swiss Bank Secrecy” was published in 2016.

Last November UBS was again sued by US authorities, who accuse the bank of misleading investors over the sale of mortgage-backed securities in 2006 and 2007, just before the financial crisis struck.

UBS has denied the charges and said it will defend itself “vigorously”.