On Jan 15, 2014, we downgraded our recommendation on
) to Underperform from Neutral based on the negative earnings
estimate revisions over the last 30 days. Among the headwinds,
the company's third-quarter results were disappointing. We don't
expect any significant improvement in earnings in the upcoming
quarters given the current challenges across the industry and the
BANK CHINA LTD (BACHY): Get Free Report
BANCO FRANC-ADR (BFR): Free Stock Analysis
SOCIETE GENL FR (SCGLY): Get Free Report
UBS AG (UBS): Free Stock Analysis Report
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Why This Downgrade?
The Swiss banking giant has witnessed downward earnings estimate
revisions over the last 30 days, pulling the Zacks Consensus
Estimate for 2013 down by 1.6% to $1.25 per share. Also, for
2014, it declined 6.4% to $1.47 per share. This reflects
analysts' negative sentiment on the company's fundamentals.
UBS AG's third-quarter 2013 net income attributable to
shareholders of CHF 577 million ($619.1 million) was
substantially below the prior-quarter's income of CHF 690 million
($731.8 million). Earnings for the quarter were primarily
affected by higher net charges related to litigation, regulatory
and similar matters. Notably, these net charges also increased
during the nine months ended Sep 2013.
Further, UBS AG's balance sheet is expected to be hit by the
recent regulatory compliance that requires banks using the
internal ratings-based (IRB) approach to apply a bank-specific
IRB multiplier when calculating risk-weighted assets (RWA) for
Swiss residential mortgages. This will lead to an increased RWA
of CHF 2-3 billion each year from 2013 through 2019 for the
The absence of significant improvements in the European banking
system and U.S. macro-economic issues could weigh on UBS AG's
financials in the upcoming quarters.
However, UBS AG currently carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better-ranked foreign banks include
BBVA Banco Franc
), based in the Republic of Argentina, France based
Societe Generale Group
Bank of China Ltd
). Both BBVA Banco and Societe Generale carry a Zacks Rank #1
(Strong Buy) while Bank of China holds a Zacks Rank #2 (Buy).