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Provisions rise UBS gears up for more heavy fines

UBS chief executive Sergio Ermotti has plenty of legal issues to think about


Switzerland’s largest bank, UBS, has put aside more cash for expected fines as it announced stable third quarter earnings. Facing an array of legal complaints, its litigation provisions now total nearly CHF3 billion ($3 billion).

On Thursday, the bank announced it had added another $421 million (CHF418 million) to its pot covering alleged malpractice in the way it sold mortgage backed securities before the financial crisis. But the $1.4 billion it now holds in anticipation of fines in this area pales in comparison to the $14 billion that Deutsche Bank has been asked to pay for similar alleged offences.

Despite the heightened anticipation of heavy fines, UBS posted a CHF827 million profit attributable to shareholders in the third quarter of this year. This is some way below the CHF2.1 billion recorded in same period last year, but this figure had been inflated by a CHF1.3 billion one-off tax benefit.

Pre-tax profits, once one-off items had been stripped out, were a healthy CHF1.3 billion in Q3 this year, well up on 2015.

The result beat analysts’ predictions, but the looming litigation issues - which include a tax evasion probe in France and new problems in Hong Kong - put a dampener on the results.

“UBS is doing everything right by delivering in the variables it has most control on, being cost-cutting and net new money. Unfortunately the current environment of low interest and client risk aversion continues to weight on profitability,” said IG Bank analyst Andreas Ruhlmann in a note.

“UBS is not out of the bush yet in terms of litigation with important settlement yet to be solved with the French government and the American Department of Justice. The road will remain bumpy and better cost control will not be sufficient to support a sustained rally on the stock price.”

During a press conference in Zurich on Thursday, the bank refused to elaborate on a newly announced legal probe by the Hong Kong authorities into its role in helping private companies list on the stock market.

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