* Pledges 0.25 Sfr dividend for swap to new holding
* Hits one capital target that triggers 50 pct profit payout
* Q1 net profit is 1.054 bln Sfr vs 905 mln in Reuters poll
* Earnings drop at wealth management, investment bank
(Adds comments from company presentation, updates shares)
By Katharina Bart
ZURICH, May 6 UBS will revamp its
corporate structure to ensure it can be broken up more easily in
a crisis, cutting the amount of money it must set aside for
potential losses and allowing it to pay shareholders a special
The Swiss bank will swap shares into a new group holding
company, meaning its businesses could be separated more easily
if one ran into trouble without jeopardizing the others,
preventing a repeat of 2008 when Swiss taxpayers had to save the
bank from huge losses in the United States.
Switzerland's largest lender has overhauled its business
since the financial crisis, cutting back on risky debt trading
made more expensive by tougher regulations and putting it a step
ahead of rivals such as Barclays which is still
grappling with how to retool its investment bank at the centre
of a drop in profits in the first quarter.
Chief Executive Sergio Ermotti said UBS's success in
shrinking its investment bank and focusing on its less-risky
private bank would help it to drive returns for shareholders.
"Our performance has proven that the model works," Ermotti
said in a presentation to analysts and investors in Zurich on
Tuesday. "We intend to return any excess of capital that we
don't need to support our own business."
UBS beat analyst expectations with a 7 percent rise in
first-quarter net profit to 1.05 billion Swiss francs ($1.20
billion). However, the jump, due to cost cuts and a lower tax
rate, masked a drop in earnings from wealth management and
Analysts had expected net profit of 905 million francs,
according to a Reuters poll, yet the underlying numbers failed
to impress them.
"The investment bank missed our forecasts. Private banking
shows strong net new money, but profitability can still be
improved," said J.Safra Sarasin analyst Rainer Skierka, who
rates UBS shares a "buy".
Despite the weak underlying performance, UBS shares rose
more than 1 percent as investors homed in on the special
dividend of 0.25 francs a share they will receive for swapping
their shares into the new holding structure.
"It is the capital return part of this story that makes it
exciting and that is performing ahead of expectations," said
Citigroup analysts, who also have a "buy" rating on the stock.
UBS is sticking to a target for a 15 percent return on
equity, up from 8.7 percent currently, by 2016 as it seeks to
cut 2.1 billion francs in costs.
Investment banking profits fell more than half compared with
a year ago due to a slide in income from trading in equities,
foreign exchange, interest rates and credit revenue.
Personnel expenses, meanwhile, rose 38 percent at the
investment bank from the end of the year, largely due to an
increase in bonuses to staff.
UBS said it now aimed for a cost-to-income ratio at the
investment bank of between 70 and 80 percent, compared with 65
to 85 percent previously. It will no longer target 10,000 job
cuts, unveiled as part of its three-year restructuring plan in
late 2012, although it will continue to reduce headcount which
has been cut by around 3,400 over the past year and a half.
Pretax profit at UBS's private banking division fell 7
percent from a year ago even though it won 13 billion francs in
fresh money from clients in the quarter. The new money implies
4.9 percent growth, against a target of up to 5 percent.
Costs at the private bank rose 6 percent from a year ago and
the bank said it would be more ambitious in getting such
expenses down, targeting a cost-income ratio of 55 to 65 percent
from 60-70 percent previously.
UBS said it aimed for more than 1 billion francs in pretax
profit from asset management in the medium term, up from 576
million last year, in part by selling more products to private
banking clients and spending cuts.
To satisfy regulators' demands for separate legal entities
in different regions, UBS plans to break with its existing
structure in which a parent company holds a host of
interconnected branches. That model meant the entire business
had to be rescued by Swiss taxpayers when it ran up more than
$50 billion in U.S. mortgage losses.
Instead, it will create standalone entities including a new
Swiss subsidiary, a separately capitalised unit for its UK
business and a holding company for its U.S. operations.
The bank is within striking distance of paying out at least
half of profits to shareholders if it can maintain capital -
which stands at 13.2 percent under new global rules - at or
above current levels through to the end of 2014 and achieve a
ratio of 10 percent when applying its own stress tests.
Bigger dividends are the goal of UBS's three-year drive to
shrink its investment bank and abandon riskier activities such
as bond trading, where a slowdown hit rivals including Credit
Suisse in the quarter.
Its shares have risen 46 percent since it announced a
restructuring in late 2012, compared with 36 percent at Credit
Suisse, which has maintained a focus on investment banking.
Both Swiss banks have beaten an index of European banks
, which rose just over 30 percent in the same period.
($1 = 0.8778 Swiss Francs)
(Additional reporting by Joshua Franklin; Editing by Carmel
Crimmins, Tom Pfeiffer and Mark Potter)