* Q4 net profit boosted by 470 million franc tax benefit
* Slimmed-down investment bank avoids bond trading pitfalls
* Warns about impact of emerging market rout
* Expects more litigation and regulatory risks in 2014
* UBS others named in civil suits related to FX probe
By Katharina Bart
ZURICH, Feb 4 UBS raised its dividend
and increased bonuses for bankers by nearly a third on Tuesday
after the Swiss bank returned to a fourth quarter profit,
reaping the benefits of a revamp of its investment banking
The turnaround follows a transformational year in which UBS
successfully hived off loans, abandoned risky bond trading
activities and centred the group around its traditional private
banking roots. Its shares rose six percent.
The results represent a vindication of sorts for UBS's
decision to shrink its investment bank and largely withdraw from
riskier activities such as bond trading, where a slowdown has
stung rivals such as Goldman Sachs, Citigroup and
UBS, Switzerland's biggest bank, reported fourth quarter net
profit of 917 million Swiss francs ($1.02 billion) after it
booked a 470 million franc gain from deferring taxes.
The result was nearly three times the 354 million francs
average estimate of 16 analysts polled by Reuters and a
turnaround from last year's 1.89 billion francs loss when it was
fined for trying to rig global interest rates.
UBS increased its bonus pool by 28 percent to 3.2 billion
francs from 2012, when awards were cut after it had to pay out
$1.5 billion to settle the interest rate allegations.
Chief Executive Sergio Ermotti said compensation at the bank
was now "normalised." But the increases drew criticism in
Switzerland, where taxpayers are still sore at having to bail
UBS out during the financial crisis.
The bank kept a conservative outlook, in particular for its
private bank, and said an emerging market rout may unnerve its
wealthy clients, which could in turn hit fund inflows, revenue
and interest margins.
Analysts said the muted private bank outlook would likely
cap future gains in UBS's stock, which is up around 45 percent
over the past year, compared to a 12 percent gain in the
European banking sector.
"Hats off to them for both the speed and scale of the
restructuring but it feels as if much of that good news is
captured in current valuations," Alex Potter, analyst at
Geneva-based private bank Mirabaud, said. "There is not an awful
lot of revenue growth evident in the business."
UBS's investment bank made a 297 million franc pre-tax
profit in the quarter, up 18 percent from the quarter before, as
strong stock markets bolstered equity trading and advisory fees.
The private bank's profits rose 18 percent, but spending
crept higher, in part due to bigger bonuses. It attracted 5.8
billion francs in new client funds, much of this from Asia.
Unlike smaller rival Julius Baer, whose profit margins fell
in the fourth quarter, UBS held its margin at 85 basis points
but said growing this to a targeted range of 95 to 105 basis
points would require a sustainable recovery in markets, interest
rates and client confidence.
In a boost for UBS's capital position, Switzerland's
regulator agreed to cut the extra reserves the bank needs for
litigation, compliance and other operational risks to 22.5
billion francs from 28 billion francs three months ago.
This brought UBS's common equity Tier 1 ratio - a gauge of
financial strength - to 12.8 percent just shy of the 13 percent
level at which it has pledged to pay out more than 50 percent of
The bank said the 2013 earnings would allow it to pay
shareholders 0.25 Swiss francs a share for the year, two-thirds
more than in 2012. The 2013 dividend represents a 30 percent
UBS said it expected elevated charges for litigation,
regulatory and similar matters in 2014. UBS has a 1.7 billion
franc war-chest to deal with legal tangles.
It is one of a number of banks cooperating with a global
investigation in to possible manipulation in the $5.3
trillion-a-day foreign exchange market. It said several class
action lawsuits relating to the probe had been filed against it
and other banks.
Regulatory authorities are looking at whether traders at
some of the world's biggest banks colluded to manipulate
benchmark foreign-exchange rates used to set the value of
trillions of dollars of investments.