Impressive Q4 Earnings for UBS AG - Analyst Blog

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UBS AG ( UBS ) reported fourth-quarter 2013 net income attributable to shareholders of CHF 917 million ($1.0 billion), which compared favorably with the prior-year quarter loss of CHF 1.9 billion ($2.0 billion).

The company experienced higher net interest and trading revenues (up 16% year over year) and elevated net fee and commission income (up 3%). Moreover, decreased operating expenses acted as a tailwind for the quarter.

The reported quarter recorded reduced net charges for provisions for litigation, regulatory and similar matters of CHF 79 million ($87.4 million) as compared with CHF 2.1 billion ($2.3 billion) in the prior-year quarter.

UBS AG's adjusted pre-tax income came in at CHF 755 million ($835.6 million) in the reported quarter compared with a loss of CHF 1.3 billion ($1.4 billion) in the prior-year quarter.

For full-year 2013, net income attributable to shareholders was CHF 3.2 billion ($3.5 billion), which compared favorably with the prior-year loss of CHF 2.5 billion ($2.7 billion).

Performance in Detail

UBS AG's operating income increased 2.0% from the prior-year quarter to CHF 6.3 billion ($7.0 billion) while operating expenses decreased 27.0% year over year to CHF 5.9 billion ($6.5 billion).

On a year-over-year basis, adjusted operating profit before tax increased 18% at its Wealth Management division and 59% at the Wealth Management Americas division. However, operating profit moved down 8% at the Retail & Corporate division and 12% for Global Asset Management. Further, Corporate Center reported a loss.

Moreover, at UBS AG's Investment Bank unit, the company experienced a pre-tax profit of around CHF 297 million ($328.7 million) compared with a loss of CHF 243 million ($260.9 million) in the prior-year quarter.

Notably, UBS AG experienced own credit loss on financial liabilities of CHF 94 million ($104.0 million) as against CHF 414 million ($444.5 million) in the prior-year quarter. Further, the company recorded net restructuring charges of CHF 198 million ($219.1 million) in the reported quarter versus CHF 258 million ($277.0 million) in the prior-year quarter.

Capital Position

As of Dec 31, 2013, UBS AG's invested assets were CHF 2,390 billion ($2,683.9 billion), up CHF 51 billion sequentially and CHF 160 billion year over year.

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 (CET) 1 ratio stood at 18.5% as of Dec 31, 2013, compared with 15.3% in the prior-year quarter and 17.5% in the prior quarter.

Further, phase-in BIS Basel III CET 1 capital increased by CHF 2.2 billion to CHF 42.2 billion ($47.4 billion) as of Dec 31, 2013. Phase-in CET1 capital increased CHF 3.2 billion on a sequential basis, mainly reflecting the exercise of option to acquire the SNB StabFund's equity.

Phase-in Basel III risk -weighted assets (RWA) declined CHF 33.2 billion year over year to CHF 228.6 billion ($256.7 billion). Yet, phase-in RWA jumped by CHF 6.3 billion sequentially, largely reflecting incremental RWA of CHF 22.5 billion, which resulted from the supplemental operational risk capital analysis mutually agreed upon by UBS AG and FINMA.

On a fully applied basis, UBS AG's BIS Basel III common equity tier 1 ratio increased 300 basis points year over year and 90 basis points sequentially to 12.8%, which surpassed the company's target of 11.5% for 2013. Swiss systemically relevant banks (SRB) leverage ratio stood at 4.7%, up 110 basis points year over year and 49 basis points sequentially.

Fully applied RWA declined to CHF 225.2 billion ($252.9 billion) from CHF 258.1 billion ($282.4 billion) as of Dec 31, 2012. However, it increased slightly on a sequential basis by CHF 6.3 billion.

As of Dec 31, 2013, total assets stood at CHF 1,009.9 billion ($1,134.1 billion), dropping CHF 249.9 billion from Dec 31, 2012 and CHF 39.2 billion from Sep 30, 2013.

Outlook

According to UBS AG, failure to attain persistent progress on material improvements to unresolved issues in Europe, US fiscal and monetary issues and the ongoing global concerns, as well as the uncertainty at large, could impact the client activity levels and trading volumes in the first quarter of 2014. Further, revenue growth, net interest margin and net new money are also expected to be impacted. However, it expects wealth management businesses to continue to attract net new money.

In Conclusion

Despite the stressed operating environment, UBS AG recorded impressive results. The lawsuit settlements by the company during 2013 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 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 competitive edge.

UBS AG currently carries a Zacks Rank #3 (Hold). Some better-ranked foreign banks include Shinhan Financial Group Company Limited ( SHG ) and Banco Bilbao Vizcaya Argentaria, S.A. ( BBVA ) with a Zacks Rank #1 (Strong Buy), while Deutsche Bank AG ( DB ) carries a Zacks Rank #2 (Buy).



BANCO BILBAO VZ (BBVA): Free Stock Analysis Report

DEUTSCHE BK AG (DB): Free Stock Analysis Report

SHINHAN FIN-ADR (SHG): Get Free Report

UBS AG (UBS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: BBVA , CET , DB , SHG , UBS

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