Presenting its first set of earnings under new Chief Executive Sergio Ermotti, UBS AG reported a 76% fall in fourth-quarter net profit Tuesday, as trading in shares and bonds slowed to a trickle.
In light of tough financial markets and ever more demanding regulators, UBS's priority in the year ahead is on further boosting capital, as well as ensuring sound liquidity and funding positions, Mr. Ermotti told reporters.
UBS, Switzerland's largest bank by assets, said net profit fell to 393 million Swiss francs ($427.9 million) in the quarter ended Dec. 31, from 1.66 billion francs a year earlier, below analysts' average estimate of 739 million francs in net profit. Revenue declined 16% to 5.97 billion francs.
In a gesture to shareholders who have gone without a dividend since 2006, UBS will pay a nominal dividend of 0.10 franc a share. The bank's executives did, however, sound a cautious note on the year ahead.
"As in the fourth quarter of 2011, ongoing concerns surrounding euro-zone sovereign debt, the European banking system and U.S. federal budget deficit issues, as well as continued uncertainty about the global economic outlook in general, appear likely to have a negative influence on client activity levels in the first quarter of 2012," UBS said in a statement.
The traditional improvements in client activity during the first quarter may thus fail to materialize, UBS said. Should markets deterioration continue UBS is prepared to take action to lower its cost base further, Mr. Ermotti said. UBS launched a sweeping cost-cutting program last year, which includes the axing of thousands of jobs.
The investment bank reported its second consecutive quarterly loss. The pretax loss was 256 million francs, compared with a pretax profit of 100 million francs a year earlier. Still, the loss was smaller than predicted by analysts as revenue from trading held up better than feared, and thus partly offset the bank's low flexibility on costs.
After it was hit hard during the financial crisis, UBS moved to pay higher fixed salaries than bonuses to convince bankers to stay, a decision that proves costly today because it limits UBS's ability to slash compensation costs.
Reflecting a tough year overall, the bonus pool for 2011 at the investment bank is 60% lower than in 2010. For the bank as a whole, the bonus pool will be cut 40%. The bonus pool shrank more than revenue fell, reflecting UBS's ambition to more closely align interests of staff and shareholders, Mr. Ermotti said. Investment bank head Carsten Kengeter is voluntarily foregoing his bonus, Mr. Ermotti said.
In September, UBS disclosed that an employee on its London-based equity desk allegedly made unauthorized trades that caused $2.3 billion in losses. The losses were incurred at the unit under Mr. Kengeter's watch. The scandal led to the resignation of CEO Oswald Grübel shortly thereafter. British and Swiss regulators recently began enforcement proceedings against UBS for shortcomings that allowed unauthorized trades to be made last year.
The business of managing assets for clients suffered as clients preferred to keep their assets in cash, which pressured profits at UBS's wealth-management units. But it managed to attract new assets from clients, particularly in Asia-Pacific and other emerging markets, as well as from super-rich clients. In the Americas, the recruiting of experienced financial advisors added new assets from clients. UBS made progress in cutting risk and boosting capital and is ahead of targets laid out in November, Mr. Ermotti said.
UBS said in November it plans to cut risk-weighted assets at its investment bank by almost half over the next five years and is pulling out of several business lines. The move comes as Swiss and global regulators are pressuring banks to hold more capital. The biggest cuts come at the investment bank's FICC unit—short for fixed-income, currencies and commodities—which absorbs a disproportionate amount of capital.
Like several rivals, UBS plans to focus on so-called flow business—trading bonds, currencies and shares for clients—which requires less capital backing.
UBS cut risk weighted-assets by 20 billion francs in the fourth-quarter and said its Basel 2.5 Tier 1 ratio—a measure of capital strength—rose to 16% from 13.2% during the fourth quarter.
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