Libor and restructuring drag UBS into the red

Dark clouds continue to follow UBS Keystone

UBS suffered a SFr2.5 billion ($2.7 billion) loss last year as the result of a huge Libor fine and the continued dismantling of its investment bank.

The $1.5 billion (SFr1.4 billion) Libor rate-rigging fine late last year swelled legal costs to SFr2.1 in the fourth quarter. Added to a SFr258 million restructuring charge, the bank recorded a SFr1.9 billion loss for the last three months of 2012.

This compared with a SFr393 million profit in the same period of 2011 and full year profit of SFr4.1 billion.

“This experience is a stark reminder of what can happen if we fail to maintain the highest standards in our business,” UBS chief executive Sergio Ermotti said at a press conference.

The setbacks forced UBS to announce last October that it would radically cut back its investment banking division, shedding 10,000 jobs in the process.

Wealth management disappoints

The bank managed to shed SFr122 billion of risky assets from its books in 2012, mainly from its investment bank.

The investment bank clear-out has put more emphasis on wealth management for future business growth. While Wealth Management Americas showed record profits of $872 million (SFr900 million) for the full year, European clients continued to pull assets out of the bank.

The core wealth management business recorded net inflows of SFr2.4 billion, well short of analysts’ estimates. Germany’s rejection of a withholding tax deal with Switzerland in December contributed to European outflows, the bank confirmed.

“Despite the lack of progress on certain bilateral tax treaties, we remain confident that our asset-gathering businesses as a whole will continue to attract net new money, reflecting our clients’ steadfast trust in the firm,” UBS said in a statement.

Difficult times ahead

UBS also announced that it will peg back bonuses further with the introduction of bonds instead of cash for its highest earners. These so-called “bail-in” bonuses can be converted into shares if the bank does well, but could also be wiped out if results dip.

UBS recommended a 50 per cent increase in dividend payments to SFr0.50 for 2012, but warned of further difficult times ahead.

“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 said in a statement.

Rival bank, Credit Suisse, will announce its results on Thursday.