UBS overhauls structure, offers investors extra cash

Tue May 6, 2014 8:06am EDT
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By Katharina Bart

ZURICH (Reuters) - UBS will revamp its corporate structure to ensure it can be broken up more easily in a crisis, cutting the amount of money it must set aside for potential losses and allowing it to pay shareholders a special dividend.

The Swiss bank will swap shares into a new group holding company, meaning its businesses could be separated more easily if one ran into trouble without jeopardizing the others, preventing a repeat of 2008 when Swiss taxpayers had to save the bank from huge losses in the United States.

Switzerland's largest lender has overhauled its business since the financial crisis, cutting back on risky debt trading made more expensive by tougher regulations and putting it a step ahead of rivals such as Barclays which is still grappling with how to retool its investment bank at the center of a drop in profits in the first quarter.

Chief Executive Sergio Ermotti said UBS's success in shrinking its investment bank and focusing on its less-risky private bank would help it to drive returns for shareholders.

"Our performance has proven that the model works," Ermotti said in a presentation to analysts and investors in Zurich on Tuesday. "We intend to return any excess of capital that we don't need to support our own business."

UBS beat analyst expectations with a 7 percent rise in first-quarter net profit to 1.05 billion Swiss francs ($1.20 billion). However, the jump, due to cost cuts and a lower tax rate, masked a drop in earnings from wealth management and investment banking.

Analysts had expected net profit of 905 million francs, according to a Reuters poll, yet the underlying numbers failed to impress them.

"The investment bank missed our forecasts. Private banking shows strong net new money, but profitability can still be improved," said J.Safra Sarasin analyst Rainer Skierka, who rates UBS shares a "buy".   Continued...

Swiss bank UBS CEO Sergio Ermotti addresses a news conference to present the company's results of the first quarter in Zurich May 6, 2014. REUTERS/Arnd Wiegmann