) reported third-quarter 2013 net income attributable to
shareholders of CHF 577 million ($619.1 million), which
substantially lagged the prior-quarter's income of CHF 690
million ($731.8 million). The quarterly results were impacted by
net charges for provisions for litigation, regulatory and similar
matters worth CHF 586 million ($628.7 million), partially offset
by a net tax benefit of CHF 222 million ($238.2 million).
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Based on the current regulatory and political climate affecting
financial institutions and involvement in a number of claims and
regulatory matters, UBS AG expects charges associated with
litigation, regulatory and similar matters to remain at elevated
levels through 2014.
UBS AG's adjusted pre-tax income came in at CHF 484 million
($519.3 million) in the reported quarter compared with CHF 1.0
billion ($1.1 billion) in the prior quarter.
The company experienced lower net interest and trading revenues
and reduced net fee and commission income. However, decreased
operating expenses acted as a tailwind for the quarter.
Notably, the company experienced own credit loss on financial
liabilities of CHF 147 million ($157.7 million) as against a gain
of CHF 138 million ($146.4 million) in the prior quarter and net
restructuring charges of CHF 188 million ($201.7 million) in the
reported quarter versus CHF 140 million ($148.5 million) in the
Performance in Detail
UBS AG's operating income declined 14.9% from the prior quarter
to CHF 6.3 billion ($6.8 billion) while operating expenses
decreased 7.8% sequentially to CHF 5.9 billion ($6.3 billion).
On a sequential basis, adjusted operating profit before tax
increased 1.6% at its Wealth Management division and 6.9% at
Retail & Corporate. However, operating profit moved down
11.2% at the Wealth Management Americas division, 14.5% for
Global Asset Management and 58.4% for Investment Bank. However,
Corporate Center reported a loss.
Moreover, at UBS AG's Investment Bank unit, the company
experienced a pre-tax profit of around CHF 251 million ($269.3
million) compared with CHF 775 million ($822 million) in the
UBS AG's invested assets were CHF 2,339 billion ($2,509.5
billion) as of Sep 30, 2013, down from CHF 2,348 billion
($2,490.3 billion) as of Jun 30, 2013.
The company witnessed a rise in its regulatory capital. The BIS
Basel III framework came into effect in Switzerland on Jan 1,
2013. The company's phase-in BIS Basel III common equity tier 1
ratio stood at 17.5% as of Sep 30, 2013, compared with 16.2% in
the prior quarter.
Further, phase-in BIS Basel III common equity tier 1 capital
decreased slightly by CHF 0.4 billion to CHF 39.0 billion ($43
billion) as of Sep 30, 2013. Phase-in Basel III risk -weighted
assets (RWA) declined CHF 20.3 billion to CHF 222.3 billion
On a fully applied basis, UBS AG's BIS Basel III common equity
tier 1 ratio increased 70 basis points to 11.9% and fully applied
RWA declined to CHF 218.9 billion ($241.5 billion) from CHF 239.2
billion ($253 billion) in the prior quarter. As of Sep 30, 2013,
total assets stood at CHF 1,049 billion ($1,157 billion),
dropping CHF 80 billion from Jun 30, 2013.
According to UBS AG, failure to attain persistent progress on
material improvements amid the ongoing Eurozone sovereign debt
concerns, US fiscal and monetary issues and the ongoing global
concerns, as well as the uncertainty at large, could impact the
client activity levels in the fourth quarter of 2013. However, it
expects wealth management businesses to continue to attract net
Further, UBS AG expects the application of SNB StabFund option in
the fourth quarter of 2013 will increase its fully applied and
phase-in BIS Basel III common equity tier 1 capital ratios by
about 100 basis points. Further, it anticipates a 25 basis points
surge in Swiss (Systemically Relevant Banks) SRB leverage ratio.
At the end of the reported quarter, FINMA imposed a temporary 50%
add-on to UBS AG's advanced measurement approach-based
operational risk-related RWA associated with expected or
unexpected litigation, compliance and other operational risk
Therefore, beginning in the fourth quarter of 2013, this
temporary FINMA add-on is anticipated to record additional
operational risk-related RWA of about CHF 28 billion on both a
fully applied and a phase-in basis. Currently, UBS AG expects the
effect of such an imposition to lower its fully applied Basel III
common equity tier 1 ratios by 130 basis points.
In the stressed operating environment, UBS AG recorded a
sequential decline in its earnings owing to legal issues. The
lawsuit settlements by the company manifest its aim to resolve
all mortgage related issues, and thereby reduce costs over the
upcoming period. Further, the move is expected to provide relief
to the investors who were duped by such risky investments.
Amid the overall economic volatility and the Eurozone debt
crisis, UBS AG will focus on building its capital level.
Restructuring initiatives taken during 2012 are encouraging and
we believe that such efforts would help improve the company's
operating competence in the future. Moreover, prudent business
model changes can further improve its efficiency and bolster its
UBS AG currently carries a Zacks Rank #2 (Buy). Some foreign
banks that are worth considering include
Deutsche Bank AG
Banco Bilbao Vizcaya Argentaria, S.A.
Credit Suisse Group AG
), all carrying a Zacks Rank #1 (Strong Buy).