ZURICH (Reuters) - UBS (UBSG.S) is increasing payouts to shareholders as growing business with its core base of wealthy clients helps to offset the effects of tighter regulation and a one-off 2.9 billion Swiss franc ($3 billion) hit from U.S. tax reforms.
The Swiss bank, which manages than more than $2 trillion of the world’s wealth, said on Monday it would increase its annual dividend to 0.65 francs per share from 0.60 francs the year before, and buy back up to 2 billion francs of shares over three years - its first such buyback since the financial crisis.
Announcing the merger of its Wealth Management and Wealth Management Americas divisions, the company said it expected the unified business to deliver net new money growth of 2-4 percent per year and double-digit pretax profit growth.
“We believe that this is the long-awaited beginning of UBS becoming the ultimate capital return story among larger banks,” Baader Helvea analyst Tomasz Grzelak said in a note to clients.
Since the financial crisis, UBS has focused on beefing up its profitable wealth management business - which today serves around half of the world’s billionaires - and paring back its capital-intensive investment bank, a strategy cross-town rival Credit Suisse (CSGN.S) is now replicating in its own overhaul. Following record inflows to its international wealth management business last year, UBS anticipates further growth as expanding Asian economies fuel an increase in the number of the world’s ultra-wealthy.
With banking regulations getting tougher, UBS said it was removing a link between future shareholder payouts and a measure of its capital strength.
In early December, financial regulators reached a deal to harmonize global banking rules, capping a decade of effort to make banks more resilient and requiring many of them to increase their capital reserves.
For UBS, the changes mean it has to bulk up its capital cushion, which it expects might grow by 4 billion francs over the next three years.
But the reforms have also brought certainty.
“Greater regulatory clarity means we can open a new chapter for UBS, allowing us to sharpen our focus on growth across our businesses ... and deliver attractive returns to shareholders,” Chief Executive Sergio Ermotti said in a statement.
Despite the increased payouts for investors, UBS shares slipped around 3 percent in early trade and were down 1.3 percent at 19.07 francs at 1305 GMT.
Zuercher Kantonalbank analysts said UBS’s accompanying top-line results were “slightly disappointing,” with “only wealth management Americas and asset management posting higher-than-expected earnings.”
UBS posted a 2.2 billion franc net loss for the fourth quarter of 2017, hit by a 2.9 billion franc writedown due to U.S. tax reforms. Pretax earnings, though, were up 34 percent.
Banks from JPMorgan (JPM.N) to Goldman Sachs (GS.N) and Bank of America (BAC.N) have taken multi-billion-dollar hits from U.S. tax cuts, as the lowered rate saw them write off deferred tax assets carried forward from the financial crisis.
UBS said its new Global Wealth Management business would be jointly run by Martin Blessing, who earlier ran Germany’s Commerzbank, which was rescued by the state in the financial crash, and American Tom Naratil.
The reshuffle follows the surprise departure in December of the international business’s 50-year-old head Juerg Zeltner, though Ermotti said that had “zero to do” with the changes.
“Juerg Zeltner and Tom Naratil were working for two years toward combining the wealth management units,” Ermotti said during a press conference.
The combination should bring cost benefits as the units combine legal, risk management and middle- and back-office operations.
Reporting by Brenna Hughes Neghaiwi; Editing by John O'Donnell and Mark Potter