DealBook: UBS Profit Falls 76% on Loss in Investment Banking
8:13 p.m. | Updated
UBS, the largest Swiss bank, said on Tuesday that its fourth-quarter profit had slumped 76 percent from a year earlier, as money entering its wealth management unit did not make up for a loss in investment banking.
Quarterly net income fell to 393 million Swiss francs, or $427 million, from 1.7 billion francs in the fourth quarter of 2010, the bank said.
The investment banking unit had a loss of 256 million francs, compared with a profit of 100 million francs in the fourth quarter of 2010. It is the second consecutive quarterly loss in investment banking for UBS, and the bank said the beginning of 2012 was looking equally tough.
“Ongoing concerns surrounding euro zone sovereign debt, the European banking system and U.S. federal budget deficit issues” are likely to weigh on demand for bank services and especially trading volumes at the investment bank in the first quarter, UBS said in its quarterly report.
The bank said it cut its 2011 bonus pool for the investment bank by 60 percent from a year earlier.
UBS, however, said it expected to continue to attract client money to its wealth management operations in the first quarter. Net new money there in the last three months of 2011 rose to 5 billion francs, from 3.4 billion francs in the period a year earlier.
The bank, based in Zurich, also strengthened its capital position by increasing the so-called Basel 2.5 Tier 1 ratio to 16 percent from 13.2 percent.
Sergio P. Ermotti, who has run UBS since September, is pursuing a cost-cutting plan that would reduce investment banking and increase the focus on the more successful wealth management business. UBS created the plan to help it comply with stricter capital requirements for banks by the Swiss government and a drop in demand for investment banking services and products.
Mr. Ermotti said previously that completing the cost-cutting plan should give UBS an advantage over rivals that are facing the same market challenges but have yet to react. He said 2012 would be a year of transition.
UBS was one of the banks hit hardest during the subprime mortgage crisis and has since faced other difficulties. The bank’s private banking operation was at the center of a Justice Department investigation of offshore tax evasion by wealthy Americans. Last September, UBS uncovered a $2.3 billion loss from unauthorized transactions at its London equity unit, and a trader, Kweku M. Adoboli, was arrested and charged with fraud and false accounting. That loss led to the resignation of Mr. Ermotti’s predecessor, Oswald J. Grubel.
For the full year, UBS reported a profit of 4.2 billion francs, down from 7.5 billion francs in 2010.
UBS shares declined 0.7 percent on Tuesday to close at $14.27.
UBS, the largest Swiss bank, said on Tuesday that fourth-quarter profit had slumped 76 percent from the period a year earlier, as new money coming into its wealth management unit failed to make up for a loss in investment banking.
Quarterly net income fell to 393 million Swiss francs ($427 million) from 1.7 billion francs in the fourth quarter of 2010, the company said.
The investment banking unit had a loss of 256 million francs compared with a profit of 100 million francs in the fourth quarter of 2010. It is the second consecutive quarterly loss, and the bank said the beginning of 2012 was looking equally tough.
“Ongoing concerns surrounding euro zone sovereign debt, the European banking system and U.S. federal budget deficit issues” are likely to weigh on demand for the bank’s services and especially trading volumes at the investment bank in the first quarter, UBS said in its quarterly report.
The bank said it cut its 2011 bonus pool for the investment bank by 60 percent from a year earlier.
UBS, however, said it expected to continue to attract client funds to its wealth management operations in the first quarter. Net new money there in the last three months of 2011 rose to 5 billion francs from 3.4 billion francs in the period a year earlier.
The bank, based in Zurich, also strengthened its capital position by increasing the so-called Basel 2.5 Tier 1 ratio to 16 percent from 13.2 percent.
Sergio P. Ermotti, who has run UBS since September, is pursuing a cost-cutting plan that would reduce investment banking and increase the focus on the more successful wealth management business. UBS created the plan to help it comply with stricter capital requirements for banks by the Swiss government and a drop in demand for investment banking services and products.
Mr. Ermotti said previously that completing the cost-cutting plan should give UBS an advantage over rivals that are facing the same market challenges but have yet to react to them. He said 2012 would be a year of transition.
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UBS was one of the banks hit hardest during the subprime mortgage crisis, and has since faced other difficulties. The bank’s private banking operation in the United States was at the center of a legal dispute, and in September UBS uncovered a $2.3 billion loss from unauthorized transactions at its London equity unit, prompting the departure of Mr. Ermotti’s predecessor.
For the full year, UBS reported a profit of 4.2 billion francs, down from 7.5 billion francs in 2010.
This post has been revised to reflect the following correction:
Correction: February 7, 2012
An earlier version of this article misstated the amount of client funds UBS attracted in the first quarter. Net new money rose to 5 billion Swiss francs from 3.4 billion francs. It did not rise to 5 million francs from 3.4 million francs.
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DealBook: UBS Profit Falls 76% on Loss in Investment Banking