Margaret Doyle's Profile
UBS positions itself for turnaround
UBS has given investors,depositors and shareholders some nasty surprises in the past
couple of years. However, under a new management team and with the damaging American tax dispute being settled, the bank is positioned for recovery.
True, the scars of recent disasters are still visible. UBS made another big loss of “just” 1.4 billion Swiss francs in the second quarter, albeit less than the deficit of almost 2 billion Swiss francs in the previous one. However, once one-offs — like
a 1.2 billion hit from an improvement in its own credit, a restructuring charge and a goodwill write-down on the sale of its Pactual business in Brazil — are taken into account, the bank turned in a 971 million Swiss franc profit, its best performance in two years.
Both investors and depositors continue to leave in droves, disaffected by UBS’s behaviour. Luxembourg’s financial regulator accused the bank of “serious failure” in its custody of a $1.4 billion fund that invested with fraudster Bernard Madoff, a
charge that UBS strongly rebuts.
U.S.-based customers, many of whom chose UBS because of Switzerland’s famed bank secrecy, have discovered that the bank cannot withstand the twin pressures of an investigation by America’s tax authorities and a political shift against tax havens. UBS’s shares have sharply rallied since news of the settlement emerged last week. However, the details are still being thrashed out between the two governments. The dispute has already damaged UBS’s private bank: the wealth management and
Swiss bank arm saw net outflows of 16.5 billion Swiss francs of client money over the quarter. If UBS does have to hand over thousands of previously confidential names, it may continue to lose clients.
Moreover, any bigger dent in Swiss banking secrecy will impose more collateral damage across the entire Swiss banking industry. This is understood by the Swiss government, which had signalled that punishment of UBS, perhaps in the shape of a
fine, was preferable to allowing foreign tax authorities to go on “fishing expeditions” for tax fugitives.
So far, however, other Swiss banks have avoided the worst of the damage. Julius Baer <BAER.VX>, which reported first half results on July 27, has suffered outflows from GAM, its troubled hedge fund arm, which it is planning to list separately. But it has attracted inflows into its private bank.
Oswald Gruebel, UBS’s newish chief executive, is also making progress in cutting costs and in de-risking the bank. Risk weighted assets fell 11 percent over the quarter, and the bank’s tier 1 capital ratio was 13.7 percent, one of the highest in
Europe. UBS’s leverage ratio is now 3.5 percent, well above the 3 percent minimum stipulated by the Swiss financial regulator.
UBS may never reclaim its reputation as a bastion of banking solidity, but when compared to the depths it has plumbed in the past two years it is on the path to recovery at last.