UBS 4th Quarter Loss Expected

As expected, UBS AG (UBS) posted a large loss in the 4th quarter of CHF8.1 billion, bringing the total loss for the year to CHF19.7 billion. This was above our estimates of CHF6.5 billion for the quarter and CHF18.5 billion for the year, largely reflecting higher-than-expected credit losses due to the reclassification of assets to loans and receivables from the trading account.

There were a number of one-time charges in the 4th quarter numbers, including CHF4.2 billion related to the transfer of bad assets to the Swiss National bank and the sale on mandatorily convertible notes and CHF1.6 billion stemming from the redemption of UBS debt. Excluding these and several other nonrecurring items, UBS reported a pretax loss of CHF2.8 billion in the fourth quarter.

Perhaps the most disturbing aspect of the 4th quarter report was the significant loss of money in UBS’s wealth management and asset management businesses. In the 4th quarter, there were net new money outflows of CHF85.8 billion versus CHF83.6 billion in 2008’s third quarter.

To shore up these operations, UBS is dividing along geographic lines. Global Wealth Management & Business Banking will consist of two new divisions: Wealth Management & Swiss Bank, housing all the non-American wealth management businesses and the Swiss private client and corporate client businesses, and Wealth Management Americas.

On the positive side, UBS slashed bonuses, and total compensation costs fell 36% year over year and were well below what we had estimated.

The company’s capital position continues strong, with a Tier 1 capital ratio of 11.5% and a Total capital ratio of 15.5% at year-end. This reflects a CHF30 billion reduction in risk-weighted assets, the issuance of CHF 6 billion in mandatorily convertible notes, and the elimination of the dividend on its common stock.

We currently rate UBS a Hold. The Zacks rank is 2, indicating an upward bias on the share price. UBS shares are up over 6% from yesterday’s closing price of $11.04 in morning trading.  

Read the full analyst report on UBS

Read the full analyst report on UBS