UBS lays foundations for investment bank rebuild

LONDON: The Swiss bank has moved on from Libor woes, slashed risk and is buying back debt. It's now in the vanguard on capital.

True, the investment banking unit's 60pc payout ratio needs a chop, and a new bond-based bonus plan confuses matters. But the repair job is on track.

Full view will be published shortly.

CONTEXT NEWS

- UBS said on Feb. 5 that it would buy back 5 billion Swiss francs in outstanding bonds in the first quarter of the year, in addition to buying back hybrid instruments ineligible for Tier 1 capital status worth 995 million euros.

- The announcement came as UBS reported a 1.9 billion Swiss franc loss for the fourth quarter, chiefly owing to a 1.4 billion franc fine it paid for Libor rate rigging.

- UBS decreased Basel III RWAs 14 percent, or 43 billion Swiss francs, in the fourth quarter to 258 billion Swiss francs.

- That means UBS has already met about 50 percent of its goal of reducing RWAs to 200 billion francs by the end of 2017. Legacy assets dropped from 49 billion Swiss francs to 38 billion quarter-on-quarter as a result of asset sales, and UBS's core investment bank had RWAs of just 64 billion francs, below its target of 70 billion for 2013.

- The Swiss bank's core Tier 1 equity ratio under Basel III improved to 9.8 percent at the end of last year, from 9.3 percent at the end of the third quarter.

 - Pre-tax profit in UBS's wealth management unit fell 32 percent quarter-on-quarter to 398 million Swiss francs, as gross margins on invested assets declined by four basis points to 0.85 percent as a result of low interest rates globally. New money inflows slowed to 2.4 billion Swiss francs in the fourth quarter compared to 7.7 billion in the prior period.

- Revenue for overall investment banking activities fell by a quarter to 1.7 billion Swiss francs, as a result of UBS winding down part of its fixed income, currencies and commodities business. However, revenue from advisory and capital markets rose 15 percent.

- Group headcount declined 3 percent year-on-year, with the number of investment bank employees falling 7 percent to 15,866 over 12 months. Personnel expenses in the investment bank fell 10 percent year-on-year to 5.1 billion Swiss francs.

- However, UBS Investment Bank's compensation ratio - or the proportion or revenue paid out to employees - was 83 percent in the fourth quarter, giving the bank a 60 percent ratio for the full year. That was a decrease from the previous year's level of 72 percent.

- UBS cut its bonus pool for 2012 by 7 percent to 2.5 billion francs and introduced a scheme to pay bankers with loss-absorbing capital which will be revoked if capital targets are not met. It issued about 500 million francs in those instruments in the fourth quarter.