UBS expected to entice with prospect of payouts

By @ibtimes on

Swiss bank UBS may flag its first return to shareholder payouts since the financial crisis on Thursday in an attempt to appease investors over lower profitability targets as it announces it is slashing its investment bank.

The bank will detail its restructuring when it meets investors in New York at an annually-held event. It is likely to set a new return-on-equity target of 10-15 percent, according to several analysts surveyed, from a previous target of 15 to 20 percent that it had already abandoned.

UBS does not plan to announce major job cuts at the event, a source told Reuters on Tuesday. UBS declined to comment, deferring questions to Thursday. In August, UBS said it would cut 3,500 jobs -- some 5 percent of its workforce -- in a cost-cutting drive meant to save 2 billion Swiss francs (1.4 billion pounds) annually.

UBS made stand-in Sergio Ermotti permanent chief executive on Tuesday and brought forward the start date of chairman designate Axel Weber, in a move to restore stability following the Swiss bank's $2 billion (1 billion pounds) trading scandal.

Analysts including Bank of America (BofA) Merrill Lynch's Derek DeVries and Nomura's Jon Peace are predicting Ermotti will pledge to award in 2012 its first cash dividend since 2006, when it paid out 2.20 Swiss francs a share.

Massive losses in the financial crisis forced UBS to stop dividend payments as it sought to rebuild capital.

UBS management could use a capital return story to try and offset disappointment from a lowered return-on-equity target and medium-term targets, BofA Merrill analyst DeVries wrote in a note. He rates UBS stock neutral, with a price target of 14.30 Swiss francs.

UBS shares were flat at percent at 10.63 francs at 11:10 a.m. British time. The stock has fallen almost 31 percent this year, slightly less than the European banking index <.SX7P>, off 34 percent.

LOWER RISK TO BENEFIT PRIVATE BANK

UBS management have been working on a new strategy for months and executives said the trading scandal uncovered in September had not changed the broad thrust -- to put far more focus on the private bank, the world's third-largest by assets, according to an annual benchmark survey by Scorpio Partnership.

The shift is likely to relegate the investment bank to a provider of services to the private bank, which caters to the financial needs of the wealthy. UBS financial head Tom Naratil last month outlined investment banking services such as research and bespoke products as key to the private bank.

Like others in the industry, UBS investment bank is being forced to slash riskier assets ahead of a glut of tough new capital regulations that will make some businesses, particularly fixed income, too expensive.

Banks worldwide are shedding thousands of jobs as the rules aimed at shielding them from future financial crises compound the impact of a tough trading environment.

Earlier this month, Credit Suisse stole some of UBS' thunder when it said it would cut 1,500 jobs and 50 percent of risk-weighted assets in fixed income by 2014 as it more closely aligns investment and private banking.

French bank Societe Generale said earlier this month it would cut bonuses and scrap its 2011 dividend after a tough quarter as it scrambles to meet the strict new rules.

If UBS does raise the prospect of a dividend, the bank is expected to make a payout contingent of reaching targets of cutting back risky assets as well as profitability. The move would also likely have to be vetted by Swiss regulator FINMA.

Ermotti hinted at a payout return on Tuesday, saying part of the point of shedding risky assets is to free up capital and increasingly take shareholder interests into account.

Investment banking head Carsten Kengeter will also be in focus on Thursday. Seen as a possible CEO candidate before the trading scandal, his future has since been in doubt, although Ermotti confirmed his role in his top team on Tuesday.

UBS, which righted itself after a 2008 government bailout following more than $50 billion in write-downs on illiquid securities, has not returned anything to shareholders since 2007, when it paid a modest stock dividend.

A UBS spokesman declined to comment on whether the bank plans to return to shareholder payouts again.

(Editing by Emma Thomasson and Jodie Ginsberg)

Join the Discussion