UBS makes record SFr20 billion loss in 2008

Keystone

Switzerland's embattled largest bank, UBS, made a loss of almost SFr20 billion ($17 billion) last year, the highest ever by a Swiss group.

It reported on Tuesday that this was mainly due to continuing problems at its investment bank. UBS made a loss of SFr8.1 billion in the fourth quarter alone.

The bank said it would cut another 2,000 jobs in the investment bank, mostly in New York and London. Staff reductions in the group totalled 1,782 in the fourth quarter.

UBS added it aimed at cutting investment bank staff to about 15,000 from 17,171 now.

The loss for the fourth quarter followed a SFr8.8 billion trading loss in the three months, as well as charges UBS made after selling billions of toxic assets to the Swiss National Bank (SNB) when it was rescued by the state in October.

Massive outflows

UBS continued to suffer massive outflows between October and December – SFr58.2 billion in its wealth management business and SFr27.6 billion from its asset management unit.

In a statement, UBS said there had been a “substantial” reduction in its risk positions during the fourth quarter, quite apart from the transaction with the central bank.

And it pointed out that fourth-quarter staff expenses were down 41 per cent from the previous quarter, with full-year personnel expenses down 36 per cent from 2007.

In its outlook, UBS said it had had an “encouraging” start to the year and net new money was positive in January in both wealth management and asset management businesses.

But it warned that financial market conditions remained “fragile” as company and household cash flows continued to deteriorate.

“Cautious”

“Our near-term outlook remains cautious, and UBS will continue its programme to strengthen its financial position through reductions in risk positions, risk weighted assets, total assets and operating costs,” the statement added.

UBS also announced structural changes to refocus the bank on its core Swiss businesses, its global wealth management operation – the world’s biggest – and on the growth potential of its onshore business.

“We are emphasizing the importance of our core business in Switzerland, which will be better represented in our leadership and governance,” commented UBS chairman Peter Kurer.

Chief executive Marcel Rohner said that although the bank had left a bad year behind it, he could nevertheless report “substantial progress”.

“Our businesses are well positioned for a challenging future. We had an encouraging start into the new year but the environment will remain difficult and volatile as the real economy has not seen [the] worst yet.”

Analysts were not so sure about how much progress had been made.

“We remain sceptical as the clean-up of the mess will take several quarters,” commented Dirk Becker from Kepler Capital Markets in a note.

Vontobel analyst Marcel Staub said investors would continue to shun the stock as long as uncertainties remained.

“We will have to wait and see if management’s [overly] optimistic statement regarding the beginning of the year will be enough. Its comments three months ago were similarly positive.”

Bonuses

In a related development, Switzerland’s banking watchdog issued a statement saying it was allowing UBS to distribute SFr1.8 billion in bonuses for the year 2008.

The Swiss Financial Market Supervisory Authority (Finma) said the guaranteed payments totalled SFr1 billion, which included SFr700 million in cash.

It added there were also discretionary payments of SFr1.2 billion, mostly to lower and mid-ranking employees.

Cash payments to employees would be reduced by more than 80 per cent compared with last year. Taking only investment banking into account, the reduction was 95 per cent. The amount will be limited to SFr125,000 in cash per person, Kurer told Swiss television late on Tuesday.

There was a public backlash at the end of January after news of the bonus payments was published in a newspaper.

The Swiss National Bank also issued a statement on Tuesday saying that its stabilisation fund for UBS has been reduced from $60 billion to $39.1 billion.

It said that the both the central bank and UBS had agreed not to transfer certain categories of assets, including securities backed by student loans.

As a result of the overall reduction, the maximum risk to be borne by the SNB has declined “considerably” to about $35 billion.

Switzerland’s second-largest bank, Credit Suisse, announces its results on Wednesday.

swissinfo with agencies

Key facts

UBS financial figures 2008:

Operating income at the end of 2008: SFr1.545 billion (SFr31.721 billion in 2007)
Net loss: SFr19.697 billion (SFr5.247 billion in 2007)
Staff: 77,783 (83,560 at the end of 2007)
A shareholder dividend has not been proposed for 2008.

Dispute with United States tax authorities

UBS has been accused of helping US clients avoid taxes by hiding assets in Switzerland.

A statement from the bank on Tuesday said it had been “working to respond in an appropriate and responsible manner” to achieve a satisfactory resolution to the issues.

The US Justice Department wants the Swiss to hand over confidential data on the wealthy clients to help its investigation into offshore services provided by UBS advisers to US clients from 2000 to 2007.

Swiss banking legislation prohibits disclosure of client data or names unless the authorities believe the client has committed a serious crime such as money laundering or tax fraud.

Switzerland does not consider tax evasion a criminal offence.

UBS structural changes

The bank has created two new business divisions: Wealth Management & Swiss Bank, and Wealth Management Americas.

UBS said the new structure refocused UBS on its core businesses, on the large scale and strengths of its wealth management franchise in Switzerland, and on the growth potential of its onshore business globally.

A statement said the investment bank had made “substantive progress” in re-risking and de-leveraging its balance sheet and its overall structure had been greatly simplified.