UBS results impress despite hefty legal bills

UBS is starting to bloom despite continued legal risks. Keystone

Swiss banking giant UBS showed signs of shrugging off its past problems by posting surprisingly good preliminary results in the face of continued litigation and legal costs – totalling several hundred million francs in the second quarter.

This content was published on July 22, 2013 minutes

The bank said it had settled a dispute with the United States Federal Housing Finance Agency (FHFA) over the sale of mortgage related securities and paid CHF100 million to Britain under the terms of a tax deal between the two countries.

UBS will chalk up CHF865 million ($919 million) in legal bills, impairment of financial assets and “other significant provisions” in the second quarter. But the bank still expects to post a CHF690 million net profit, compared to CHF425 million in the corresponding period last year.

Zurich Cantonal Bank analyst Andres Venditti welcomed the news that UBS had finally dealt with the FHFA legal wrangle. UBS was one of 18 global banks to be sued for allegedly mis-selling mortgage backed securities during the financial crisis.

“UBS has paid a steep price, but the negotiations have been going on for some years so it is a positive step to finally get the litigation over with,” Venditti told “Shareholders expect litigation costs to continue to be high in the next quarters. This may be a year of settlements, but the underlying outlook is positive.”

Julius Bär

Switzerland’s largest private bank, Julius Bär, announced the success of its takeover of Merrill Lynch’s non-US wealth management operations as it posted its half year results on Monday.

Assets under management rose 15% to CHF218 billion during the last six months, Julius Bär said.

But the CHF99 million cost of absorbing the former Merrill Lynch business had an impact on results. The bank also raised the expected total integration costs from CHF400 million to around CHF455 million.

Julius Bär also paid out CHF28 million to the British tax authorities under the terms of a treaty with Switzerland to resolve tax dodging charges.

As a result of the one-off payments, net profits declined 30% from the same period last year to CHF114 million.

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Outstanding issues

UBS was itself at pains to point out that its underlying business model can absorb hefty legal bills, announcing preliminary Q2 results a week earlier than its official financial presentation.

The bank surprised analysts who had forecast net profits of CHF558 million for the period of March to June. But the bank is still facing a number of outstanding lawsuits, not least as one of around 14 Swiss banks that may hand over confidential information to the US to clear up a long-standing tax evasion dispute.

The eventual cost of settling the ongoing row is not yet known, but it is not expected to come cheap. Last month, UBS was also fined €10 million by France for failing to comply with tax regulations.

But the bank remained upbeat on Monday, highlighting the CHF12.8 billion in net new assets from wealthy individuals and families it had attracted in the last quarter. The bank also announced that its fire-sale of risky assets, a policy that was accelerated last autumn, had improved its robustness against future financial market shocks.

The second quarter has proved a prosperous one for large banking giants, with the US group of Goldman Sachs, JP Morgan, Citigroup, Morgan Stanley and Bank of America leading the way with forecast-beating results.

UBS rival Credit Suisse will report its Q2 results on Thursday, July 25.

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